Watch Out for Changes with Credit Card Companies

By Dr. Boyce Watkins

www.DrBoyceMoney.com

In case you weren’t sure, credit card companies are not out to help you. If you are financially illiterate and uninformed, they are going to exploit you. If you are worried about the financial crisis, they are going to prey on your fear to get money out of you. They are also doing exactly what the rest of us are doing: trying to remain protected in a fragile economy.

The stimulus is stymied. The bailout is a failout. The stock market has consistently given a “thumbs down” to every piece of legislation passed in response to this crisis. Our economy is like the sick man who won’t respond to antibiotics. While the results of the latest package are yet to be seen, the truth is that no one is sure what will work. Every company is out to protect their assets and hold on to their cash, which means they no longer have much interest in loaning money to you.

Yes, this is true even if you have a good credit score, which is the ironic part.

Customers are opening their monthly statements to find that credit card companies have started to either ration credit (give less of it) or raise the interest rate being paid on outstanding debt. This doesn’t even count all the dirty tactics used, like using your payments to pay off low interest debt first, quietly getting rid of the grace period or charging interest on your balance from the prior two months vs. the current one. Even when you’ve been making payments on time for years, banks keep raising the bar to maximize shareholder wealth. When liquidity is scarce, those giving out water demand a higher cost per bottle. Additionally, higher default rates have justified the increase in interest rates, but higher interest rates increase the likelihood of default. It’s a nasty cycle, really.

Lawmakers are trying to intervene. Congressional hearings have taken place. Banks are being scolded by senators who keep telling them that this form of business practice is unethical and that they are gouging the American consumer. All this might be true, but what is also true is that you can’t force banks to loan you money. Also, it is very difficult, if not impossible, to legislate a strong economy.

If you have a less than stellar financial history, there is an even greater opportunity for your credit card company to raise your interest rates. If you have defaulted on other loans or are a slow payer in other areas, then they have no problem telling you to pay up or ship out. The days of easy money are long behind us, and companies are dramatically shifting their business practices.

The bottom line is that THEY’VE GOT YOU. They know that you’ve become addicted to the debt they so readily offered in the past, and this debt has become the lifeblood for the lifestyle to which you’ve chosen to become accustomed. They know that they can charge you a higher interest rate because you can’t do anything about it. Like a drug addict who is angry about paying more for his product, you really don’t have any other choice.

Well, maybe you do.

Here is one solution: tighten your economic belt. That means putting together a financial fitness plan today that consists of getting rid of as much debt as possible. I’ve mentioned in prior articles and on our website that paying off debt can be one of the best investments you make with your money. This is especially true if you have a stable job and are paying a high rate of interest to your credit card company.

So, the Dr. Boyce Challenge for this month is simple: Create a budget which includes the steady elimination of credit card debt. That means you should list every single expense you have for the entire month on one piece of paper or a spreadsheet. Don’t leave anything out. Count the money you want to use for getting your hair done, your nails, paying your mortgage, car note, whatever. Count everything. That will be your first step toward obtaining financial fitness.

As you create the budget, allocate at least 10% of your monthly after tax income toward reducing credit card debt. So, if you earn $3,000 per month after taxes,$300 per month should be allocated toward removing credit card debt, not including interest. So, if you owe $5,000 in credit card debt, you can remove this debt in roughly a year and a half. While $300 may seem like a lot of money to find in your budget, it’s there if you look hard enough. In fact, if you spend $10 per day on lunch and/or coffee, you can find the bulk of the money by taking your lunch to work. Make this one of the first bills you pay, not the last. The last bill is the one that only gets paid half the time. It’s easier to negotiate with creditors if you don’t need them so much. Take small steps toward finding your financial freedom.

Next month, we will move to step 2 of the Dr. Boyce Financial Challenge. While I confess that this change won’t be easy, I can promise that it will be worth it in the end. Be strong and remain focused, this is your opportunity to shine.

Dr Boyce Watkins is a Finance Professor at Syracuse University and author of “Financial Lipo 101: From financial fat to fitness”, to be released in April, 2009. For more information, please visit www.DrBoyceMoney.com.

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Helping Your Relatives in Retirement

Question: My mother is 50 years old and has no 401(k), IRA or any type of retirement account that she can rely on when she is no longer able to work. What type of plan can I set up for her so she can start saving money? L.K., Lancaster, Pennsylvania

Answer: The issue of what adult children can and should do to help assure that their parents are financially prepared for retirement is one that's getting more attention as lifespans increase and we become increasingly reliant on our personal savings to fund our post-career lives.

Typically, though, this is the type of question I get from baby boomers who, already squeezed by simultaneously saving for retirement and paying school and other child-rearing costs, now face the prospect of also having to provide financial assistance to retired parents.

 

Click to read.

Technorati Tags: personal finance,money,investing,saving,401k,black money,african american money,black wealth,african american wealth,black enterprise

Keeping Your Confidence While In The Financial Crisis

by Dr. Boyce Watkins
http://www.boycewatkins.com/

If you listen carefully to the words of Treasury Secretary Henry “Hank” Paulson and Ben “Big Ben” Bernanke (chairman of the Federal Reserve) you might notice a trend in their language. The word “confidence” is used a lot when they speak. Many of their monetary proposals are not necessarily valuable for their financial power, but also for their psychological power.

Some of you may wonder what confidence has to do with anything. After all, if you’re broke, confidence doesn’t exactly put money in your pocket. If you’re 100 pounds overweight, confidence won’t help you win the Olympic 100 meter dash. When you are flying on a crashing plane, confidence doesn’t keep the plane from slamming into the ground. But confidence is important to an economy, and one of the most significant drivers of economic growth. In fact, over confidence has driven US economic growth for the past 10 years. Here are some reasons that confidence matters in the minds of Hank and Big Ben:

1) Confident consumers spend money
If you think you might lose your job next year, are you going to max out your credit cards? I certainly hope not. If you are worried about being able to make ends meet, are you going to buy that big screen TV? Not unless you want your wife to leave you. So, even if it doesn’t hold any truth, the mere forecast of a weak economy is enough to make many Americans hold off on consumer spending, one of the great driving forces of the American financial system.

2) Confident companies invest money and hire workers
Investments involve risk. Your hunch may work out, and it may not. If you don’t believe the economy is getting better, you are not going to consider taking that risk. No one plans to go to the beach if the weather man says that it’s going to rain. When economic rain is in the forecast, companies pull out their umbrellas and hold off on new projects. This reduces the number of jobs in the economy, because nearly every job created in America is the result of someone making an investment.

3) Confident Americans do not take their money out of banks
In case you didn’t know, your bank does not have your money. Your money is part of a large base of financial capital that is loaned out to individuals and consumers seeking to get a good return on their investment. So, without investing, your bank would have no interest in paying you any interest at all. So if, say, 30% of all customers of the same bank decide to get their money out at the same time, the bank would have serious financial problems. It is a lack of confidence that could cause customers to “run” on their bank and take out their money.

4) Confident investors keep their money in the stock market
The stock market is a place where fortunes are made and lost. Some part of that fortune is psychological, given that no asset can have a value which exceeds that which someone is willing to pay for it. When investors lose confidence, they take their money out of the stock market, and reductions in demand for stocks lead to massive paper losses in the market. Additionally, most Americans are “momentum traders”, meaning that when the market goes up, they tend to buy more, and when it goes down, they tend to sell. History shows that it is actually the opposite approach that tends to work best.

5) Confident banks make loans
Banks have to keep a certain portion of their funds on hand at all times to meet federal requirements. If they are fearful that their customers might come and demand their cash, they hold onto their capital to ensure that it is available. If they are afraid that their borrowing customers will not be able to repay loans due to a weak economy, they also hold back on issuing new loans. The truth is that when economic forecasts are grim, conservative bankers become even more fearful than the rest of us.

The bottom line of this article is that confidence matters. So, the next time you hear Ben Bernanke give a speech, you can be confident that he is going to use language that makes you feel more secure. Whether you choose to believe those words is up to you.

Dr. Boyce Watkins is a Finance Professor at Syracuse University and author of “Financial Lovemaking 101: Merging Assets with Your Partner in Ways that Feel Good”. For more information, please visit http://boycewatikns.com/

Love, Money and Family: Where We Always Get it Wrong

By Dr. Boyce Watkins
www.FinancialLovemaking.net

People fall in love every day. Some fall in love forever, and some just love the idea of falling in love. We are all familiar with the bliss and agony of love, and our mating, dating and procreating choices define much of the quality of our earthly existence.

But many of us love in all the wrong ways and make short-term choices with serious lifelong consequences. For long-term relationships, reality eventually sets in, and we learn that LOVING together means LIVING together. The thrill you once got from a long, seductive kiss is replaced by the excitement of a good home appraisal or bank account increase. Financial insecurity and emotional insecurity become one and the same, as we find there is a strong correlation between financial deception and emotional betrayal. A big part of living is MONEY. According to a study by the Council of Relationships, money is the number one reason for divorce. This alarming reality is a strong reminder that not discussing the financial and practical dimensions of your relationship can cause you a lifetime of misery.

Some consider it taboo to discuss love and money in the same sentence. I consider it ESSENTIAL. While we might mull all day over a potential mate’s emotional compatibility, sexual compatibility, professional compatibility and spiritual compatibility, most of us don’t spend one second thinking about financial compatibility. Many couples step into serious relationships and marriage without knowing their partner’s income levels, debt levels, credit score, retirement savings, or any of the other significant pieces of information that are going to have a dramatic effect on their love life. Merging your life with a financially irresponsible person is like putting your children into a car with a drunk driver. Once you are in the car, your fates are inextricably linked.

Money plays a huge role in our quality of life, emotional well-being, ability to raise our children properly or ability to spend time together. Money can either be a tool to enhance your love or a weapon to destroy it. Many people have seen their love and relationships ruined by financial problems, financial deception or financial exploitation. How we manage, confront and conceptualize the power of money plays a huge role in how our relationships evolve. That is what Financial Lovemaking is all about.

You think money doesn’t matter in a relationship? Well, here is just a small list of ways that someone could ruin your life financially:

• A partner with horrible credit could keep you from ever getting loan.
• A partner with terrible spending habits can ruin a family’s financial security.
• A partner with a substance abuse or other costly addiction could deplete a family’s assets.
• A partner with unhealthy connections to deadbeat relatives, who always need money, may drain your assets.
• A partner that with an income that is too low due to a lack of education or poor professional choices could ruin you financially.
• A partner may steal money from you or borrow it without your permission and use it for something frivolous (i.e. a bad business investment, gambling, etc.)
• A partner who makes bad financial choices may get you into trouble with the IRS.
• A partner who decides to separate from you may end up dragging you and your money through a long and costly legal battle.

I just gave you the short list of ways that money directly impacts your love life. I am sure you can think of experiences you’ve had or those of your friends. In fact, I encourage you to visit our Financial Lovemaking blog to share your personal story on how love and money have impacted your life.

I am not here there to say there’s nothing going on but the rent. However, I can say that nothing else goes on if the rent is not being paid. So, good Financial Lovemaking is the necessary step to good love. Don’t forget that.

Dr. Boyce Watkins is a Finance Professor at Syracuse University and author of “Financial Lovemaking 101: Merging Assets with Your Partner in Ways that Feel Good.” He does regular commentary in national media, including CNN, NBC, CBS, MSNBC and BET. For more information, please visit www.FinancialLovemaking.net.