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Auto Loan Bubble: Bad for Economy, Good for Savvy Consumers

Subprime Auto Loans at All-Time High

Graph courtesy of ZeroHedge. I’ve blogged about this before. This bubble will burst like all other bubbles do, which will harm the economy. But If you’re responsible enough to take on debt to buy a car, now is a great time to get an auto loan–rates are low, and they’re handing them out like candy on Halloween.

However, if you’re still trying to get your financial house back in order after getting in over your head with debt (like I did during the 2009 crash), do not take on new debt. Better to let this opportunity pass than to undo all the hard work you’ve done getting out of debt.

Before getting a loan, do a hard, realistic self-examination. Can you afford the payments comfortably, now (i. e., not once you get that raise/promotion/winning lottery ticket you’re certain you’re going to get)? If not, don’t get the loan. Buy a crappy car you can pay cash for and accumulate savings while you build/rebuild your credit.

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3 In 5 Americans Don’t Have Savings To Cover Unexpected Bills

From ZeroHedge:

In fact, only 38% of respondents said they have enough funds in their bank accounts to cover even the most mundane of spending emergencies. Most others would need to take on debt or cut back elsewhere…The survey found that an unexpected bill would cause 26% to reduce spending elsewhere, while 16% would borrow from family or friends and 12% would put the expense on a credit card. The remainder didn’t know what they would do or would make other arrangements.

This will not end well, for the non-savers or for the economy as a whole.

Most people I talk to are about to start saving any minute now, just as soon as they get a promotion or raise, or pay off their student loans, or one of a million other excuses not to. But there will always be something else taking up your money and attention unless you just force yourself to start saving. That mindset is their problem, not their income or expenses.

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A Whole Bunch of Rich People Just Had Their Identities Stolen

From Bloomberg:

Morgan Stanley fired an employee it said stole data, including account numbers, for as many as 350,000 wealth-management clients and posted some of the information online.

Morgan Stanley wealth management clients are pretty well-off, to put it mildly. If this can happen to them, it can happen to any of us.

It seems like every week now we’re hearing about millions of people whose personal information has been stolen from a large corporation. If yours hasn’t been compromised already, it probably will.

This is a matter of when, not if. Many of you have already had your identity stolen (including me, which figured into how I became involved in credit repair). If you haven’t had your stolen, consider it an opportunity to get your ducks in a row and be proactive.

If you haven’t signed up for credit monitoring, you need to do so. Despite the claims of various companies that provide credit monitoring, there’s not a whole lot of difference. I use Identity Monitor from Citibank.

Watch your credit like a hawk, and if anyone opens an account in your name, contact the credit bureaus and the FBI. Fill out an affidavit of identity theft.

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Smart, Successful People Make New Year’s Resolutions

It’s easy to be cynical about New Year’s resolutions. They’ve become less than a punchline these days–we hear scoffing about how gym memberships soar in January (ironically, the people doing the scoffing don’t darken the door of the gym at any time of year).

This is one instance where conventional wisdom is flat out wrong. Science has proven that people who set New Year’s Resolutions are more successful in achieving their desired life outcomes than those who don’t.

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Federal Student Debt Now over $800,000,000,000

FEDERAL STUDENT LOAN DEBT-HISTORICAL-CHART-1

From CNS News:

From November 2013 through November 2014, the aggregate balance in the federal direct student loan program–as reported by the Monthly Treasury Statement–rose from $687,149,000,000 to $806,561,000,000, a one-year jump of $119,412,000,000.

The balance on all student loans, including those from private sources, exceeded a trillion dollars as of the end of the third quarter, according to the Federal Reserve Bank of New York.

This is federally-owned debt; total student loan debt is roughly $1.3 trillion. Think this may be a bubble? Smart money says yes.

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Debt Collectors Target Retired, Elderly

From NBC:

Faced with a fixed income and constantly rising cost of living, many seniors now spend their “golden years” juggling bills and fending off debt collectors.

“If they get a phone call at 10 o’clock at night and the caller is harassing them for a debt, it can be very scary,” said Amy Nofziger with the AARP Foundation. “We know that it causes a lot of stress for seniors because some of these debt collectors can use foul language and other forms of harassment to try to collect the debt.”

Senior citizens are the perfect targets for debt collectors. Younger people screen their calls, and won’t hesitate to hang up salesmen or debt collectors. Seniors have that sense of old-fashioned manners that makes it, well–rude to do that. Sadly, debt collectors take advantage of this. Anything you say to a debt collector can and will be used against you.

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College Students Completely in the Dark About Student Loan Debt

Ever wonder how the student loan debt bubble got to $1.2 trillion? It’s because college students have absolutely no idea how much debt they’re racking up.

From a report by the Brookings Institute:

  • Only a bare majority of respondents (52 percent) at a selective public university were able to correctly identify (within a $5,000 range) what they paid for their first year of college. The remaining students underestimate (25 percent), overestimate (17 percent), or say they don’t know (seven percent).
  • About half of all first-year students in the U.S. (based on nationally representative data) seriously underestimate how much student debt they have, and less than one-third provide an accurate estimate within a reasonable margin of error. The remaining quarter of students overestimate their level of federal debt.
  • Among all first-year students with federal loans, 28 percent reported having no federal debt and 14 percent said they didn’t have any student debt at all.
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Couple Wins $1 Million from Bank in Suit over Repeated Debt Collection Calls

From ABC News:

Bank of America is being forced to hand over more than $1 million to a Florida couple after the bank flooded them with hundreds of loan collection calls for years – the latest example of alleged behavior that has cost the bank tens of millions.

In a complaint filed in July, attorneys for Nelson and Joyce Coniglio said that the couple had been on the receiving end of “patterns of outrageous, abusive and harassing conduct” by a subsidiary of Bank of America that included 700 calls in four years, after the bank said the couple fell behind on mortgage loan payments in 2009. The Coniglios also received “threatening collection letters asserting false and misleading information,” the complaint said.

The couple sent multiple letters from legal representation asking the bank to stop, but the calls — sometimes up to five a day — continued. The complaint describes automated calls leaving repeated pre-recorded messages.

2009 seems to have been a high-water point in this kind of debt collection. That was when I was going through my own credit card debt mess, and lots of others who were in the struggle at that time were victims of the “let’s just call them a million times and see if they’ll pay!” routine.

And hey, let’s be honest–$1 million is a pretty nice payday. This is why you document everything. Log every call. Record every call (if it is legal to do so). Take notes.

Document everything.

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18% of Americans Plan to Be in Debt Forever

From CNBC:

Survey respondents who expect to pay off their debts anticipate doing so at an average age of 53. But in addition to the 18 percent who expect to owe money forever, another 25 percent expect to be in debt until at least age 61.

Older respondents are more likely to believe their debt will be with them forever. Some 31 percent of those over age 65 expect to be lifelong debtors, compared to 22 percent of those aged 50 to 64 and just 6 percent of millennials aged 18 to 29.

This is not normal. Throughout the history of Western Civilization, debt was viewed as something unusual, only to be taken on in certain cases. If you are starting a business or buying an asset that will pay off the debt for you, that is a good use of debt. If you are financing the purchase of a house over 15-30 years, that is OK debt–assuming you have saved up a large down payment and can comfortably afford the payments. If you are using debt for routine purchases (and not paying off the credit cards in full every month), or taking out a massive loan for a worthless degree, that is bad debt.

The mindset that expects to be in debt for the rest of one’s natural life is not healthy. This is what we call debt servitude.