Financial Thoughts

We all know that banks are in trouble as a direct result of extending loans to people who couldn’t afford to repay them. When property values began rapidly decreasing it became obvious that the banks had a big problem. Many homes were worth less money than the existing mortgage and people began just walking away from them. Although this is an irresponsible move, it has been done often. Other people lost their jobs and were unable to continue making mortgage payments. Some were able to negotiate new terms with their lenders, skip some payments, and extend the loan period. All of these can help a person stay in their home and eventually get their finances back in shape. This, however, requires that the lender works with you. Some are very cooperative as they do not want to own your home, especially today, when the market is so poor and prices are continuing to fall. Others are not as amenable to changing the agreed-upon terms.

In an effort to shore up their financial situations, some banks have begun freezing Home Equity Lines of Credit (HELOC). This can have a great effect on the consumer who is depending on this line to meet a variety of expenses. Some borrow against their home to finance a college education. Others might be in the middle of a major home improvement when they discover their line has been frozen. How do they complete the work that is being done and pay the contractor? Borrowers applied for these lines of credit because they had plans for the money. These plans have now been disrupted.

Apparently, the banks are freezing these credit lines in areas where home values have decreased the most. It is not necessarily a reflection of the homeowner’s credit rating or payment history with the bank. Although the banks insist that they are sending letters to customers about freezing these credit lines, a number of people have stated that they did not receive a notice. These people often find out about the freeze after they have withdrawn funds and had their checks bounce. They are now incurring fees in addition to having to find another source for payment of debts. This situation is causing numerous problems for the customers who depended on their banks to honor their commitment for these lines of credit.

Credit card companies are targeting young people as their newest customers. They have displays at schools, offers in student literature and mail applications to their homes on a regular basis. One student recently told me that he has received at least one credit card offer per week since he was in high school and he has now graduated college. He states that he just throws them away unopened as he has no interest in having a credit card. He knew that while in school it would be entirely too tempting to have the availability to purchase everything you wanted and to go out to dinner more often then you could actually afford. He learned a lesson from watching many of his friends pile on debt. Unfortunately, not all students have such a mature attitude and many fall into the credit card trap.

It is understandable that when you attend college and are out on your own for the first time, you have no financial background to fall back on. The most you may have done to date is manage your allowance but that was probably frequently just fun money. You didn’t have to pay every little expense like doing laundry, buying food, purchasing supplies, etc. Although most parents supply some financial support to their college students, many do have to work and contribute towards their expenses. A majority handle this responsibility very well. Some even manage their credit cards properly and pay off balances in full each month. Unfortunately, though, there are many others who do not. These students are tempted by all of the offers they receive and eventually run up debt that they are unable to pay. They then take out another card to pay off the one that’s already in trouble. This is a very serious cycle for these young people as some of them are still paying off their credit card debts years later. They got to spend freely and live extremely well for a time, but the price for them is very high.  Some parenting advice is to encourage your child to obtain their first credit card, but to help them monitor the way it is managed, staying involved.

Even though the students generally have only a small income, or none at all, when the cards are issued, the credit card companies want their business. These companies know that the students are getting an education and chances are excellent that they will have good positions when they begin their careers after graduation. Meanwhile, the companies are solidifying their position with the students and betting that it will pay off in the long run, making them customers for life. If the student is not handling the credit responsibly, the company is charging them all of those extremely high fees for late payments and being over your credit limit. This is adding to their profit margins immediately and they are still confident that this customer will pay off his balance in the future, either with, or without, the help of parents.

The price of gas today is the number one subject being discussed by everyone.  Complete strangers will comment to you about this outrageous expense.  I feel perfectly free to respond with my own experiences regarding this subject.  It’s really amazing how everyone is focused on this unbelievable cost of gas which keeps rising.

One of the reasons we are so obsessed about the cost of gasoline is that it also affects the cost of many of the other necessities of life such as food and clothing.  Anything that has to be shipped will see prices rise to cover this cost.  The average person is not just paying more for gas but is also absorbing the transportation costs of food, etc.  Meanwhile, salaries are stagnant and the only way to stretch the budget is to cut down on expenses.

Consumers are frequently being offered gas reward credit cards today.  This sounds like a wonderful way to get some of the money we are spending on gasoline returned to our pockets.  It does work this way sometimes, but everyone must be extremely careful about which cards they sign up for as there are many gimmicks awaiting consumers in this area.

Certain cards offer a 5% rebate on all gasoline purchases.  This is a wonderful way to recoup some of the additional expense we are trying to absorb.  Other cards, however, can be exceptionally misleading and as an applicant you must be very diligent in reading the fine print and being certain that this is the right card for you.

A person can only benefit from a gas rebate card if they pay their balance in full.  These cards tend to charge a very high interest rate and you will lose rather than gain money if you cannot afford to pay in full each month.

When calculating the value of a gas rebate card, it is important that you know how much gas you use in a specific period of time.

Some cards actually limit the rebate amount you may receive each year to $60.  Other cards require you use a certain gas station chain.  Still others necessitate that you request your rebates in writing.  If you do not contact them within a certain period of time your rebate will progressively shrink.

Obviously, no one wants to have a card that will rebate a small amount of money or none at all.  This is why it is imperative that a complete investigation is done prior to accepting a gasoline rebate card.  Everyone is trying to get them these days, and scam artists are trying to profit from your anxiety.  Read between the lines and all of the fine print.  It will save you money in the long run.

Credit card offers are received in the mail on almost a daily basis. I no longer open them as I have not been interested in opening another account. I am fortunate that I do not have a balance to transfer. Years ago, that was not the case. I maintained a balance on my credit card almost all of the time. After awhile you didn’t know any longer what you were paying for because all of your purchases have become a blur. When you have credit card debt to pay off, balance transfer specials can be a great opportunity to save a considerable amount of money on interest. The more you save on interest in these cases, the more you have available to apply towards the principal.

Today, however, I received an offer that got my attention. My uncle has been telling me for sometime how much he likes to use his Discover Card because of the cash back feature. The offer I received today was from the Discover Card but I didn’t know that at first. It was the words on the envelope that caught my attention. The outside of the envelope offered a 3.99% fixed rate on balance transfers good until 2012. Yes, this rate is applicable for four years. I don’t believe I’ve ever seen those terms before. Of course, I don’t usually open these envelopes so I cannot be certain that an offer such as this has not become readily available. Years ago when I received these offers they were generally for a 6-month period of time, sometimes one year. I certainly don’t recall seeing anything like this one.

Upon opening the envelope I found that Discover pays a 5% Cash Back Bonus in specific categories such as travel, home improvement stores, department stores, gas, restaurants, etc. If you shop at top retailers on their exclusive online shopping center, you could be eligible for 5% to 20% Cash Back Bonus. Other purchases qualify automatically for a 1% Cash Back Bonus. This is actually a very interesting offer since most of my charges would fall into the 5% Cash Back Bonus category and this could have the potential to save me a substantial amount of money. They say there is no annual fee.

I will not be transferring balances to my Discover Card and I have noticed that their interest rates are higher than what the cards I use now are charging. The interest rates and other charges are probably similar to those charged by other companies. It is possible that since I’ve had my current cards for many years, the interest rate may be lower than for new cards issued.

I am going to investigate how much of a bonus I would be eligible for with the Discover Card. I will review my purchases over the last 6 months, calculate the 5% cash back amount I would have received using Discover, and then consider whether or not this would be a good move for me financially.