More people using ‘non-bank credit,’ aka payday loans
This article by CityLab includes a survey from 2013 about how many people were using non-bank credit, which is a polite way of saying loans for suckers: payday loans, auto title loans, pawn shops, etc. These are some of the worst things you can do financially for 2 reasons:
Experian released a report on auto loans today. Here are the high points:
- The average credit score for a new vehicle loan dropped slightly, going from 714 in Q1 2014 to 713 in Q1 2015. The average used vehicle score moved slightly higher, from 641 in Q1 2014 to 643 in Q1 2015.
- The average used vehicle loan was $18,213 in Q4 2015, up from $17,927 in Q4 2014.
- The average interest rate for new vehicles was 4.71 percent in Q1 2015, up from 4.54 percent in Q1 2014. Similarly, the average interest rate for used vehicles increased from 9.01 percent in Q1 2014 to 9.17 percent in Q1 2015.
So interest rates have inched up, along with car prices. Elsewhere in the report, they mention that the length of loans is increasing as well. Some people are even taking out 84 month (!) loans for used cars.
Official Student Loan Delinquency Rate since 2007
I posted recently that student loan delinquency rates have climbed to 18%. But with new data just released, the real picture looks much worse.
From CNN Money:
Job seekers in New York City can now rest assured that their credit history won’t impact their employment prospects. The New York City Council passed legislation that bans most employers from discriminating against job applicants and current workers based on credit history.
This is an interesting development for a few reasons. First, the original intent of credit scoring was to identify a borrower’s chances of defaulting on the loan. Under the law, companies were really only supposed to be able to check your credit score for the purpose of extending you credit (i. e. loaning you money). Now of course, credit checks are used for everything from apartment leases to job applications.
We knew it was bad, but now it looks even worse than we thought. Twenty-seven percent of student loan borrowers are a month behind on their loan payments. Keep in mind, this debt cannot be discharged in bankruptcy; these borrowers are stuck with it no matter what.
…if we adjust the delinquency rate to consider that only a fraction of the borrowers have payments due, this level of delinquency is very concerning: A delinquency rate of 15 percent for all student loan borrowers implies a delinquency rate of 27.3 percent for borrowers with loans in repayment. This level of delinquency is much higher than for any other type of debt (credit cards, auto loans, mortgages, and so on).
For my regular readers, this will come as no surprise. From CNN Money:
Roughly half of Americans are saving 5% or less of their incomes, including 18% that are not saving anything, according to a survey from Bankrate. Only about a quarter of people are saving more than 10% of their earnings.
I have a problem with the way they presented the survey, lumping people saving >5% in with those saving nothing. Making the transition from non-saver to saver is the most important step you’ll ever take in your financial life, even if you’re only saving 1%. Saving small is a starting place; in time, as you develop better habits and are able to watch your savings grow, it will be easier to save a larger portion of each paycheck.
It seems like up until a few years ago, personal finance literature focused on getting people to give up overpriced luxury items like Starbuck’s coffee.
The argument went like this: if you buy 5 of those lattes a week at $4 each, that’s $1,040 per year you’re spending on coffee. If you contributed that $1,040 to your IRA instead, after 40 years you’d have $222,154. Therefore, giving up coffee will make you $222,154 richer. Case closed.
The math is alluring, but somewhere between theory and reality there’s a breakdown. My favorite retort to this kind of logic is the following from Reddit:
Here’s another personal interest story from CNN Money. It tells the sad, yet familiar story of 3 people in their 20s who have a ton of student loan debt ($56k-$114k).
What’s most telling is that there is no mention of what kind of degrees they hold. Finance? Communications? Trans-alpine paragliding? What?
Not all college degrees are created equal.
You know tax scams are getting seriously out of hand when a criminal posing as an IRS agent calls one of the country’s top tax-crime fighters, hoping to scare him into sending money.
Yet that’s exactly what happened to Timothy Camus, the deputy inspector general for investigations at the agency that oversees the IRS.
Oh, the irony.
If you have charge-offs or collection accounts on your credit report, you’ve probably heard that debts can no longer be collected after the statute of limitations expires. That’s true–sort of. The devil is in the details, though. So here are some important distinctions about running out the clock on old debt.
On a personal note, I have done this myself. I had a few charged-off credit cards that went into collections several years ago. Some lenders had sold the debt, and others had kept it and hired collection agencies to try and collect.
At this point, I was well into my credit repair journey, and I knew that if I could make it 4 yeas from the date of first delinquency (without getting sued or doing something to extend the statute of limitations–more on that later), I was home free. At the time though, 4 years (the statute of limitations in my state) sounded like forever.
Running out the clock should never be your Plan A. It’s more like Plan B, C, or D. But you need to be aware of the statute of limitations and some other important info no matter what your plans are.
