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:
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.
Big news out of the New York Attorney General’s office. From CNN:
Experian (EXPGF), Equifax (EFX) and TransUnion, the three main agencies that track your credit, have agreed to follow new guidelines to handle disputes on your reports, according to a settlement announced Monday by the New York Attorney General.
This is huge news. Disputing information on credit reports is a big part of credit repair, and if you’ve ever gone through it, you know it can be frustrating to watch the credit bureaus acting in seemingly incomprehensible ways to simple requests like “this account isn’t mine; please delete it.”
It’s not clear at the moment how this will affect people in other states, if at all. The settlement could prompt action from other states’ attorneys general in a piecemeal fashion. The feds could even get involved in the form of the CFPB.
If you set out to do the EXACT OPPOSITE of what these people did, you’d be in good shape.
A decade ago, Comfort and Kofi were at the apex of an astonishing journey they had made from Ghana in 1997, when they had won a visa lottery to come to America. They did not know it at the time, but they were also at the midpoint in their odyssey from American Dream to American Nightmare.
Today, they struggle under nearly $1 million in debt that they will never be able to repay on the 3,292-square-foot, six-bedroom, red-brick Colonial they bought for $617,055 in 2005. The Boatengs have not made a mortgage payment in 2,322 days — more than six years — according to their most recent mortgage statement. Their plight illustrates how some of the people swallowed up by the easy credit era of the previous decade have yet to reemerge years later.
A somewhat inspirational story from Yahoo! Finance:
“We made a spreadsheet of our debts and listed them from smallest to largest,” Emily explains. “We started with the smallest and went from there — although we tackled the car payment before another, smaller one, because the interest rate was so high we wanted to get rid of it. When we paid each debt off, we just stuck that minimum payment onto the next one.”
The Adlers tackled their debt aggressively, to the point where they put any extra cash at all, like a holiday gift, towards their debt, and didn’t allocate a dollar to buying clothing. “By the end of it, we were wearing clothes with holes in them,” Emily shares.
Well, that’s one way to do it. I’m not sure the profile of these debts, but the wife referred to the “car payment” in the singular. So that’s probably one car and a whole bunch of credit cards. If that’s the case, then this couple went about this in a smart way: they changed their lifestyle in order to build new habits.
Despite all evidence to the contrary, US consumers expect 2015 to be a fantastic year for stocks, wages, employment, and housing prices. From ZeroHedge:
UMich Consumer Sentiment surged to 98.2 – smashing expectations of 94.1 by the most in almost 2 years. This is the highest sentiment since February 2004…!!This all seems very odd… especially in light of the dismal retail sales data and weak wage growth (and we note this is the preliminary print). Inflation expectations plunged to 2.4% (from 2.8%) – the lowest since 2010. American optimism remains unphased as a majority (55.2%) now expect higher wages in the next year (despite earninsg [sic] actually dropping!!)
Whenever I post a news article, I always bring it back down to the individual level to give you a takeaway that will help you improve your financial life. So what can this survey teach you?
Nobody can predict the future. The coming year may turn out to be a great year all around. I can tell you why I’m not quite that optimistic about it, but that misses the point. The point is that optimism of this kind leads to overspending and undersaving.
As I’ve written before, having bad credit will cost you lots of money in the long run. Bad credit means higher interest rates (assuming you can even get a loan in the first place) and fewer options.
Residents of the District of Columbia (while not technically a state) pay the most in interest over their lifetimes — $451,890, which includes an average new mortgage balance of approximately $462,000. D.C. residents also have an average credit score of 656, close to the U.S. average of 687, according to Credit.com, which calculated the figures based on a 30-year mortgage, average car loan balance of $22,750 (assuming nine car loans over one lifetime) and 40 years of revolving credit card debt.
656 is technically on the upper fringe of subprime territory, and the national average of 689 isn’t that great. There’s a lot of room for improvement for our country.
If you’re curious, you can play around with this calculator to see how your lifetime cost of debt changes based on your state, age, and debt levels.
The results will be similar for most people: if you have bad credit, you will pay roughly twice as much in interest as if you have excellent credit.
Credit repair is more important than ever.
More than 8.4% of borrowers with weak credit scores who took out loans in the first quarter of 2014 had missed payments by November, according to the Moody’s analysis of Equifax credit-reporting data. That was the highest level since 2008, when early delinquencies for subprime borrowers rose above 9%.
So 1 in 12 people who took out a car loan in the first quarter of 2014 were already missing payments by November. That’s why the loans were considered subprime to begin with, but still…that’s pretty high.
Sure enough, moments ago the Fed reported household consumer credit for the month of November and it is there we learned that not only did overall consumer credit miss expectations for the 4th month in a row…but that in November revolving credit, aka credit cards, not only declined for the first month since August, but it had its biggest collapse since November of 2013, which not only explains why this year’s Thanksgiving spending season was a complete disaster but also shows that contrary to the S&P hitting record highs at roughly this time, the bulk of America is still actively deleveraging.
Now, the country’s total credit card debt is often viewed as a sign of consumers’ expectations about the economy. If they expect things to get worse, they start tightening their belts and charging less on credit cards. That appears to be what’s going on here. Despite lower gas prices and a rising stock market, people on don’t feel like their personal economic situations have gotten much better.
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.
