Personal Finance QuickTake: Financial Market Mess

Leading Economists are saying the we are not only in a recession now, but probably a severe one. Most had earlier believed that this would worst case be like 2001. A drop an economic time that felt like a recession, the a nice bounce back once the economy shock off the doldrums.

Now with Bear Stearns and continued market turmoil they are convinced that this is not going to be swept under the rug quite so quickly this time.

From the report:

No less an authority than former Federal Reserve Chairman Alan Greenspan wrote this week that "the current financial crisis in the U.S. is likely to be judged as the most wrenching" since the end of World War II.

Other noted economists are also sounding alarms. Harvard professor Martin Feldstein, the former head of the National Bureau of Economic Research, said recently he believes the country is now in a recession and it could be a severe one.

What got people's attention was how quickly Bear Stearns, the nation's fifth largest investment bank, could go from a stock market value of about $3.5 billion when the market closed on March 14 to being sold at the bargain-basement price of about $236 million two days later.

"We can't afford to stagger from one day to the next without knowing what large financial institution might be the next to go down the tubes because of a lack of liquidity. That is way too dangerous a game," said Lyle Gramley, a former Fed board member who is now an economist with the Stanford Financial Group. "It is possible that we could be entering the worst recession of the post World War II period. The threat is certainly there."

I was just looking late this afternoon, even with Fed Rates at 2%, 30-year Jumbo loans are still at 7%+! This makes it tough to refinance in a time where at least that market should be moving.

Some have said for awhile that 740 is the new FICO-08 720. In other words, even those that can now make there payments and would like to get in a more tradition loan structure can't due to tightening at the banks. There is a fine line between a small night-night drink and a fire house in your mouth. They have just well over tightened. You can't blame them given that the Bear went under in less than 2 weeks!

One of the rallying cries had been that rates will reset on those with ARM tied loans and they needed to move, but given that those rates are dropping is only those that are trying to do the right thing are getting punished.

It reminds me of the old joke about a group of folk on a plane and the Captain comes on the intercom and says, I have good news and I have bad news." The bad news is...we are hopelessly helplessly lost...but the good thing is with this tail wind we are way ahead of schedule!"

Personal Finance QuickTake: Fed Cuts Rate 1/2%

At their regular scheduled meeting today the Federal Reserve made another 1/2 point cut. The market reacted by jumping 200 points only to fall back down.

The Fed also made it clear that they will continue to make cuts in order to stimulate the economy. This cut follows the surprise 3/4% cut that just happened.

Dual edged sword here, the cuts will mean that anyone with a rate pegged to the Prime Rate will see lowered interest payments (nearly all credit cards). Mortgages and refinancing should go lower, although they are balanced out a bit by demand as well as how fast the Treasury Ten-Year drops.

The downside is that 4 is the new 5...Until rates go up we won't see a lot of 5% Savings deals, unless it is a lockup or new customer offer. Also CD offers will continue to go down.

Basically the government wants us all to spend our way out of the upcoming (or here) recession! For our personal financial needs we are going to do what we can to get our FICO score to 720 and refinance...How about you? Are you looking at refinancing or buying longer CDs to lock in rates?

(photo by AP)

720 FICO and Beyond

Given that Mortgage, Auto and Credit Card Rate are coming down it is getting to be time to think about refinancing...but only on two conditions.

1. It is to swap higher loans for lower ones
2. It is not used to clear credit so you can charge again

If you are planning to clear the card and not chop them up, then pay the higher rate you are now, go off somewhere and really think if you really want to get out of debt.

If you do, then to get those sub-6% rate we are all hearing about (and maybe lower) you are going to have to have a FICO score above 720, and 750 might be the new 720 soon thanks to tighter credit restrictions and FICO 08.

First, go check your FICO score. I use www.truecredit .com because you can track your report from all three major bureaus; Trans Union, Experian and Equifax. It is important to check all three as they can be vastly different from each other. (This is NOT a pay per post, I really use them)

Now that you know where you are, if your scoresare generally over 720, or even better,750, you can go shopping for refinancing, if not,it is time to get serious about your score.

A note of warning: The Debt Snowball that Dave Ramsey and I advocate (OK he advocates and I agree!) can slow your progress in raising your Credit Score. That system advocated paying one debt off at a time then applying the balance to the next debt. The problem with FICO it looks at your debt utilization per card. So while you may have 100% paid off CC 1,2,3,4 and numbers 5 and 6 being maxed, or just higher then the optimum 30%, it will still hurt you.

Here is what your score is currently made up from:

• 35% - Payment History - On Time - Even 30-days late once can kill ya
• 30% - Amount owed - Back to utilization again
• 15% - Length of History - Longer is better
• 10% - New Credit -How much and what kind
• 10%- Types Used - Looking for a balance

So using this info from myFico, you have 850 points tops, if your payment history is bad the best you could get would be 600...if everything else was perfect!

So here are the tips per type:

• Payment History - PAY YOUR BILLS ON TIME :) pay them a bit early if it ensures they get there on time. Even one 30 day late can flip you from Good to Fair credit, costing you thousands. So what if you did, how can you fix it..."I will go to that ad that says they can erase it!" Not gonna happen, they just flood the banks with denials and hope they won't reply. It is an old tactic and doesn't really work anymore.
• Amount Owed - Less then 30% per card is the Best. Smacks against Ramsey, but is you have to get a house loan or refinance, you may have to "Gazelle" them down to this level.
• Length of History - This is the one that good meaning people hose themselves on everyday. They pay off the Credit Card then cancel it...hurting their FICO number two ways. First if this was an older card your length of history just shrunk...you guessed it lowering your score. Second, your utilization was hurt in that you had a card that had 0% used...now you don't. You irresponsible, little... :)
• New Credit - Do not (if possible) do anything to get a "Hard Pull." This means they run a check on your report. To many of these (more than (2-3 a year) and it looks to them like you are trying to load up on credit. Danger sign!
• Types Used - They like to see a responsible mix. Revolving (Credit cards) Mortgages, and store credit.

Time is your friend. I have seen people (me!) with sub 520 scores work their way up by just making their payments. If anyone tells you they can take a 500 score and make it a 700 right away, they are lying, scamming, monkey dogs...Run Forest!

I am NOT a financial analyst, just a guy who has done wrong and now rides a pale horse to towns to bring help...oh... Sorry, that was Clint Eastwood. But really read for yourself, your score is really important.

That being said, I would NOT abandon your Debt Snowball to jack your scores, just because. Only if you are going to need credit in the next 3-6 months would I change tactics.

Follow this advice and you'll have great credit in no time!

Personal Finance QuickTake: Countrywide

Yahoo via the AP is reporting the Countrywide's Stock is getting hammered on rumors that it will declare bancrupcy. This is a stunning reversal for a once booming company that was growing by leaps and bounds only 18-months ago. While companies make their own bed, I do feel for the remaining employees at the company if it happens.

My mortgage isn't at Countrywide, and even if they go under someone will buy the owned Mortgages from them, but it shows how deep this mess is...and I hate to say it, but I was part of the problem.

I bought too big of a house since we really loved it. We were given a big Jumbo ARM loan that was no problem since the property rate were shooting up here in Southern Oregon (not like California, but quick). This is really before we as a family had our heads on right regarding Finance. Wouldn't do it now.

That being said, we are lucky. We can pay our payments and could even if the ARM jumped. We will refinance next year before the ARM is up (hense my FICO goal for the year). But we will not realize the debt reduction we could have if we had stayed more within our means. It really isn't the time to sell given the depressed market, as we could take a bath to get out from it so we will stay and enjoy it, but we will be wiser for it.

So if someone tells you you can live well beyond your means due to 100 years of credit management practices being thrown out of the window, think twice...

In Managing Your Money; Hope for the Best, Plan for the Worst...

How do you know a crisis is coming? When you aren't prepared for it.



It at least seems like that to me. I would have money in my checking account, my bills paid, so I would go buy something pretty for myself (like a nice Sand Wedge :) ). The next day a bill would arrive from the IRS asking for $1200 I didn't realize I owed them. Scramble time! I would run around, maybe do a Direct Deposit loan at Wells Fargo, use a credit card, whew..all is well. Of course, I racked up debt, blew my budget and didn't manage my money well at all.



I have extolled the virtues of having an Emergency Fund before, but I believe being prepared for success mean, not setting yourself up for failure. Here are my top five ways I have seen me and my friends set ourselves up:

• No Emergency Fund - Enough of me beating a dead horse to death, but I disagree with some that say pay your Credit Cards off first, because you can charge any issue that comes up. This was my fervent believe, but I didn't pay it off right away. Plus I never broke the Credit Card vicious cycle.


• Budgets like a dictatorship couldn't live under - You really want your budgeted amounts to be based in reality. Not, we'll I read you can live on $40 a month per person even though we always spend $150. You are setting yourself up for failure. Nothing wrong in beating your budget! Successes breed more Successes, Failures breed Pop Stars..sorry I meant Failures.


• Not reviewing at least the last two years expenses - You will miss large swaths of land if you don't. Like "oh yeah, I need a car battery every x year, and tires."


• Cut up your cards, but don't cancel your accounts, yet - I disagree with Ramsey a bit here. Bad things do happen. As you are paying off your credit leave the accounts open. This is in case something happens that swamps your Emergency Fund. Not to mention that a big part of your FICO Score is your percentage of available credit and credit length. Better scores mean better rates.


• Expect Everything to get Better in a Month - You hopefully didn't spend it overnight, ingrain the habits overnight, don't expect now that you are working it rain will stop falling. Too many get discouraged by a setback. Setbacks are learning experiences! Embrace them and move forward

As with everything I post I am not a CPA, nor did I sleep in a Holiday Inn last night, do what works for you and your budget, it is the only way you will ever stick to it and that's all that matters...

Our Top 10 2008 Financial Goals...

OK, time to put it on the line with our Top 10 2008 Financial Goals. Over the course of the year I will provide updates on how we are doing and hopefully knocking these off of the list!

1. Pay Off State Farm CC - $2836.22 - We only have two CC's left to pay off, but they are both good sized with horrible Interest Rates. This is our current #1 snowball debt and we are overpaying the minimum. I hope to pay this off when my bonus comes.
2. Pay Off Car - $4594.87 - We were overpaying on this loan until we began following snowball payoff plan. This would be really nice to retire this year as it is a $350/mth payment...on a Taurus...doh!!!
3. Pay Off CitiBank Platinum CC - $8989.16 - Our oldest CC. When we got into trouble though they jacked the rate. High $ + High Rate + High Suck factor! I am going to work the Rate down and if my bonus will pay off the first two debts, our snowball may be able to kill this one too!
4. Pay Off all CC debt - This would be accomplished with the above and not charging anything at all! We would still have our Lines of Credit to pay off, but they are at interest rates 66% lower! This would be a big boon to our FICO scores as well.
5. Save 100% for 2008 Property Taxes - $5000 - Don't want to borrow to pay on this one this year. Already saving for it. Hope my neighbor isn't "helpful " again. May fund part with bonus...can you see I am really counting on a good bonus :)
6. Keep Snowball 100% Intact - If we pay off the above debt our snowball amount shouldn't change, but it is easy to justify other uses when minimums are much less...Must protect Snowball!!!
7. No CC use - We will use Debit card were we have to, but it's Cash and Direct Electronic Payment where possible.
8. Increase Average FICO Score to 720 - Current: 692.7 over three bureaus - Need to refinance house in 2009. ARM will end with bang otherwise. As soon as I can afford to , want to move to fixed loan. I will sleep much better. 720 is the basement for the best loans, really want 750...one step at a time!
9. Stick to Cash Budget System - This has been key to not letting us go over budget. However, it is a pain. Our society IS trying to be cashless so they make you go inside to pay for gas, cannot use the self-checkout at the grocery store, etc..
10. Net Worth Increased by $20,000 - This would be a great move and poise us well for 2009.

Our stretch goal for the year - This would be to get to a break even Net Worth. This would be a tough goal given were we are, but if we stick to budget and work our plan we may be able to do it.

Thanks to all for your support in 2007 to reach our goals in budgeting and money management. We can't wait to mark some of these goals off as well!

FICO Scores and the Credit Card Crunch...

There is a double Whammy coming down the pike to sub-perfect credit card holders out there.

First FICO, Fair Isaac Company's scoring arm, is rolling FICO'08. This is a code update that they due every year or so, but this year's is a pretty big change.

A quick primer first...Your FICO scores are what determines how good of a loan you get, or how low of interest rate. Banks use it as a "fair" way to measure people against each other. FICO scores range from 300-850; but really you need 600+ to have a shot at real non-mob-knee-breaking credit, and 720+ to get the scary perfect deals. There is a ton of great info out there about FICO scores and I suggest that since your finances depend on the score, know it and review often (yearly worst case, I look every month because I am paranoid).

But back to the double Whammy; the FICO'08 code roll changes some key scoring notions of previous models. Basically it doesn't penalize as much for having a bunch of credit files, but nails you harder for having a higher percentage of used credit.

That means some of us Ramsey Debt Snowball believers are going to get hit on our numbers; potentially up to a 25 point swing. This is due to the basic tenant of the snowball; pay one debt off at a time, make minimums on the others until the first one is paid off, apply it along with the second minimum to pay more than the minimum.

It will hit snowball users because many of us have maxed or high debt-to-credit ratios on our non-snowball payments cards. Not to mention some cards have FICO triggers for their Rate changes...so basically because your score changed (and even though it had nothing to do with you) your rate could go up. In some cases...a lot.

The second whammy is that since the banks are getting whacked right now with bad home loans which is leading to bad Credit Card loans, they are tightening up their approval, or at least the reins on who gets the better offer. This means it will be harder to dump those higher rate cards for something more comfortable.

Any silver lining...especially on Christmas Eve?

Yep, some will actually get a score boost if they have generally under a 35% utilization on all of their card and no missed payments. That is huge! Also, we are in an interesting time in regards to FICO. The big three Credit boys, Trans Union, Experian and EquiFax are all trying to bust FICO's monopoly and possibly get there own model that they don't have to pay for. To date, only Experian is beginning to roll FICO'08 because of this.

That being said the end of the year is not a bad time to plan out when you are going to check your credit, also make doubly sure to check prior to any major purchases. This does not mean that you should stop working your debt plan or switch to a new one. It just means there are new rules and you are better off knowing them before you play.

The embarrassment you save could be your own...

.25% Fed Move vs the Tortoise and the Hare...

So the Fed makes another rate move of a quarter point today. This apparently chapped everyone living in Manhattan 'cause stocks got beat up.

A little closer to home, I wonder how fast all of the savings rates will flip vs the rates on credit cards mortgages, etc.. I bet before I can zap my lunch in the microwave at work we'll see a couple major banks make a move regarding savings rates. Those same banks will probably make a move on lowering my credit card rate in 2108!

One of my goals for January is to contact all creditors and re-negotiate all of my rates. It is worth a shot and my FICO scores are climbing, so...