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NEWS & ARTICLES
Boomerang kids: Young adults return to the nest to get their financial house in order
Summarized with excerpts from the original source: Mui, Ylan Q., Boomerang kids: Young adults return to the nest to get their financial house in order, The Washington Post, September 11, 2006.
WASHINGTON " Victoria Grossmann graduated from the University of Florida in 2003 with a degree in business, a minor in statistics, big plans " and about $5,000 in credit card debt.
That debt was enough to send her back home to live with her parents for three years, during which she learned the tough financial lessons confronting many young people saddled with consumer debt and increasingly hefty student loans.
I had a hole to dig myself out of, and therefore moving home was the only answer, said Grossmann, 25. If I tried to pay rent, that would be just extending the amount of time it would take for me to pay off my credit card.
Such are the trade-offs facing many recent graduates. Some " known as the Boomerang Generation because they just keep coming back " move in with their parents, and others scrape by on their own. For recent graduates, trying to live within a budget is complicated by low starting salaries, minimal savings and often high educational and other debts.
Financial advice to: Boomerangers
From: Texas-based financial planner Shashin Shah
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A minimum of 10 percent of your salary should go toward savings, whether it be for retirement or a rainy day.
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If your employer offers a 401(k), start investing in it immediately, even if you can only afford to contribute 2 percent of your salary. This should be your top financial priority.
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Paying off bad debt such as credit card balances and any other high-interest loans is important, but don't let that stop you from putting money in that 401(k)
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If you're looking to move out, your housing budget should be less than 30 percent of your income. Car payments should not exceed 25 percent.
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It should go without saying, but do not borrow against your 401(k).
The hitch in "No Hassle"
February 2006
Summarized from Consumer Reports
Capital One's No Hassle Miles Rewards card promises, No blackout dates. Any airline. Anytime. However, No Hassle should be called Occasional Hassle.
Pro: Unlike many bank-issued airline-mileage cards, Capitol One doesn't make you book tickets at least 14 to 21 days in advance and lets you book on any carrier.
But there is a hitch.
Con: While most airline cards charge 25,000 points for a free, round-trip domestic ticket, the No Hassle card charges a number equal to the cheapest ticket you can find multiplied by 90.
With cheap flights, you win. For example, on a $200 ticket, you're docked 18,000 points.
$200 x .9 = $180 =>
$180 x 100 = 18,000 points =>
18,000 < 25,000 points for a roundtrip ticket
With pricey flights, you lose. For example, on a $500, you'll forfeit 45,000 points.
$500 x .9 = $450 =>
$450 x 100 = $45,000 points =>
45,000 > 25,000 points for a roundtrip ticket. You lose 20,000 points
The bottom line: Use the reward card for a flight that costs $275 or less to make a fair dollar/service comparison to other airline-mileage cards.
$275 x .9 = $247.50 =>
$247.50 x 100 = 24,750 points =>
24,750 points = $25,000 points for a roundtrip ticket.
Face up to the post-holiday bills and start a debt-shedding plan
January 2006 - Associated Press Writer Eileen Alt Powell
excerpts taken from the original article
NEW YORK " As the holiday credit card bills come flooding in, you may be feeling overwhelmed. But don't despair " there are strategies you can adopt to regain your financial footing if you're willing to invest the time and effort.
The fact is, shedding holiday debt can be as daunting as shedding holiday weight, said June Walbert, a certified financial planner with USAA, a financial services company in San Antonio that specializes in helping U.S. servicemen and their families. That doesn't mean it can't be done.
The first step for those who have overindulged on their credit cards is to stop charging immediately and move to paying cash, Walbert said.
Say you charged $700 at Christmas or Hanukkah on a card that carries a 13 percent interest rate and requires a minimum payment of $28 a month. Pay just the minimum every month, and it will take you more than five years to pay off the debt and will have cost you more than $210 in interest.
If you double your monthly payment to $56, the debt will be gone in 14 months, and the interest will be just $56.30.
Gail Cunningham, an officer with the Consumer Credit Counseling Service of Greater Dallas, which has been working with Cozart, said people have become so used to purchasing with credit cards that a lot of them were probably still paying for Christmas 2004 when they charged for Christmas 2005.
An important first step in dealing with credit card debt is to take stock of where you are, Cunningham said. Then, she said, call your creditors to see if they will offer you some help. Often creditors will understand the situation and, perhaps, offer a lower interest for a certain period of time to give the consumer the ability to get back on his feet, Cunningham said. Next, consumers need to figure out how to increase their payments.
You need to know where your money is going, Cunningham said. Most people know how much they're paying in rent or for their car. But they don't know the incidental expenses, like how much they spend eating out, and that's where they need to cut back.
Another way to increase debt payments is by getting a part-time job, she said.
I tell people, 'You can do anything for a short amount of time.' So find a job you think you'll like, say working for three months at a music store, she said. Devote all of that new income to pay down debt, then see how you feel at the end of three months.
Increasing the Minimum
As the New Year begins, so do the new guidelines for credit card issuers to raise their minimum payment policies. The guidelines"not rules"ask credit card issuers to set minimum payments to cover interest, fees, and at least 1 percent of the principal.
Consider this example. Suppose you have a $5,000 balance at a 17% interest rate. If you increase your minimum payment to 3% from 1.67% (to $150 a month from a little over $80), you have reduced the total interest you pay to just over $4,000 from more than $25,000. And you pay the debt off in 18 years rather than 81 years.
Although it may be harder to pay more on your credit card each month, it is for your own good and will save you thousands of dollars in interest payments.
More kids are falling victim to identity theft
Summarized from:January 26, 2006 ; Associated Press - Jennifer C. Kerr
Identity thieves are increasingly targeting children. Identity theft complaints involving youngsters under 18 have nearly doubled since 2003, up from 6,512 to more than 11,600 last year, according to the Federal Trade Commission.
While they make up a small percentage " about 5 percent " of the total ID theft complaints, the FTC's Jay Miller says young people are attractive to cons because they may not be as savvy about safeguarding personal information and could easily fall prey while surfing the Internet.
Identity thieves don't see age as a hurdle, said Miller, who works with law enforcement to combat identity theft. All they want is as much information about a person as they can get regardless of age. And believe me, they will find a way to use it.
The agency's annual report on consumer fraud complaints had identity theft again topping the list for the sixth consecutive year. The number of complaints filed with the FTC ticked up from 246,847 in 2004 to more than 255,500 last year.
Delinquent Credit Card Debts Stay High?
January 2006 - Associated Press - excerpts taken from the original article
The proportion of consumers behind on their credit card bills remained near record-high levels in the July-September period as high gasoline prices and rising interest rates continued to put stress on personal budgets.
The American Bankers Associated reported Tuesday that the percentage of credit card accounts 30 or more days past due dipped slightly to 4.74 percent in the July-September quarter after having hit an all-time high of 4.81 percent in the spring.
The Federal Reserve has increased interest rates 13 times since June 2004 with many economists believing that rates will be boosted by another quarter point when the Fed next meets on Jan. 31.
Commercial banks' prime lending rate, the benchmark for millions of consumer and business loans including credit card debt and home equity loans, now stands at 7.25 percent and would rise to 7.5 percent with another Fed rate increase. That would put the prime rate at its highest level in nearly five years.
The personal savings rate has fallen to record lows this year as Americans have gone deeper into debt to finance their spending.
Debt Load Makes US Vulnerable?
August 2005 - Associated Press - excerpts taken from the original article
"Buy now, pay later: It's been the mantra of American consumers for decades.
The results are obvious in the ballooning balances on credit cards and mortgage loans, and in the mushrooming U.S. trade deficit, which reflects the nation's nearly insatiable appetite for cheap, imported goods.
11 trillion in debt as they buy more homes, more cars, more clothes, more dinners out. At the same time, foreign investment in the United States is helping to keep the dollar strong, which holds down prices on those imports Americans covet.
But what would happen if interest rates suddenly weren't so benign, or if foreign governments, corporations and individuals stopped investing so heavily in America? Some analysts fear such actions could trigger doomsday scenarios in which the bills come due and Americans can't pay. The consequences could be devastating for the U.S. economy.
The tool that has made it ever so easy for Americans to buy and buy is the credit card. And bought they have.
Outstanding balances on credit cards have risen to more than $800 billion, or some $7,200 per U.S. household. It's more than double the indebtedness of a decade ago " and it doesn't include an additional $1.3 trillion in debt for cars, appliances and personal loans.
What if interest rates suddenly shot up, say 3 percentage points or 4 percentage points, requiring burdened borrowers to greatly increase the amounts they have to pay each month on their debt?
It would undermine the housing market, and could quickly result in credit problems that would affect the entire (American) financial system, says Mark Zandi, chief economist at Economy.com, a forecasting firm in Philadelphia.
Such an event isn't beyond the realm of possibility if global investors, for instance, shift their money out of the United States or if a terror attack riles financial markets.
The rebuttal: Skeptics don't see a big economic shock in the offing. Economy.com's Zandi says interest rates are most likely to go up at a measured pace, giving most consumers time to adjust to higher payments, and some may see their credit limits cut.
Still, much of the recent debt has been taken on by lower-income and lower-middle-income families, who borrowed aggressively to maintain their standard of living as wages stagnated. Going forward it will be harder for them to maintain their spending " and their living standards, Zandi says."
Are you paying the highest interest rates on your credit cards?
August 2005 - Cardweb.com
Are you paying the highest interest rates on credit cards?
Cardweb.com recently released the highest interest rates from the ten largest credit card companies. These are the rates companies charge based on cross default clauses. Cross default clauses are any negative marks on your credit report that allow credit card companies to raise your interest rate. There is no appeals process to the cross default clauses. If it's an error on your credit report, credit card companies can still charge that rate. The only power you have is to pay your bills in full and on-time to avoid these exorbitant rates.
Where the Big Borrowers Live
June 20, 2005 - MSN Money - Hilary Smith
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Bank
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Rate
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Chase
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30%
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Citibank
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30%
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Bank of America
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30%
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Providian
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30%
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HSBC
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28%
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American Express
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28%
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Capital One
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27%
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Discover
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26%
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Wells Fargo
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24%
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MBNA
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20%
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According to data compiled from approximately 3 million consumers by credit-reporting agency Experian, New Hampshire, Connecticut and Rhode Island have the highest average overall debt in the nation. As of March, the average debt for people living in these states totaled $16,845, $15,314 and $14,643, respectively.
At the bottom of the list with the least amount of debt are people living in Mississippi, Washington, D.C., and Oklahoma. Their state debt averages came in at roughly half those of the more northerly states at $8,420, $8,655 and $8,823, respectively.
ONLINE RESOURCES
Cardratings.com is the leading source of objective credit card rating information.They offer consumer information regarding approximately 1000 unique credit card offerings, including two searchable databases containing approximately 1,100 credit card descriptions.
Jump$tart Coalition for Personal Financial Literacy
Jump$tart is a nonprofit organization dedicated to enhancing financial skills in children from kindergarten to high school graduation. Lots of features, including "The 12 principles that every young person should know."
BOOKS WORTH A LOOK
Please Send Money! A Financial Survival Guide for Young Adults on their Own
by Dara Duguay
Affluenza: The All-Consuming Epidemic
by John De Graaf
A Penny Saved: Teaching Your Children the Life Skills They Will Need to Live in the Real World
by Neale Godfrey
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