What this "Financial Crisis" means to ME!

All of this talk going on about Freddie Mac and Fannie Mae, the Lehman Brothers, and the American International Group (AIG) is not only confusing, it is one of those things that makes you just want to scream at the TV..." WHAT DOES THIS MEAN TO ME!"

Well, in a nutshell, over the course of three to four weeks a few financial disasters have rocked America:
1. Freddie Mac and Fannie Mae had to be bailed out by the US government from bankruptcy because they basically had no net worth. These are the two largest mortgage financing companies in the US.
2. Merrill Lynch sold itself to Bank of America
3. The Lehman Brothers Holdings, the 4th largest investment bank in America, filed for bankruptcy.
4. AIG, one of the worlds largest insurers, was headed for bankruptcy before the US
government bailed them out with $85 billion.

All of this is a result of the mortgage fallout that has taken place in the last few years. With house prices going down and foreclosures at an all time high, many investment banks and mortgage lenders have found themselves in debt from non-paid mortgages. As a result, these companies began to see their profits being eaten up by their debts, and they just could not play catch up!
So, many of them filed for bankruptcy, and now the US government is forced with deciding what is going to happen next, and what moves they will make to ensure that this type of cycle, the biggest since the 1930s depression, does not repeat itself. The governments intervention is the largest of the sort since The New Deal.

So what does this mean to you:
1. Fluctuating stock rates and returns
2. Low interest rates
3. Continually dwindling mortgage prices
4. Some, but limited, worry about the money you have invested at financial institutions
5. The possibility of a major comeback financially after the smoke has settled in this crisis!!!

Dream Big: How to Make Educated Credit Choices

Credit Education is the one thing that is SEVERLY lacking in financial education...as if there is a such thing. Most people have to find out
for themselves, after they have ruined their credit, how to boost it back up!
Well, now, there are a ton of great resources to help us make educated credit choices, fix our credit, and maintain a good credit rating.

First, you can easily go to sites such as crediteducation.org to find classes
in your area that are geared towards teaching people, in plain language, about
credit and how to maintain it. At this site, you can even take online courses,
and become certified. Even the credit bureaus have credit education centers online
that teach you about credit scores, how they are determined, and what you can do
to keep yours at a satisfactory level.

Second, you can sign up for tools that watch your credit, and alert you everytime
a change is made or your credit file is updated. This way, you will stay abreast of
each and every thing that happens, and will be notified immediately so you can take
action if you need to.

Third, TAKE ACTION. If there is something going on that you did not authorize, then
you need to get a fraud alert placed on your credit file, and you can do this with
most bureaus online. Then, you can enroll in such programs as Credit Trax through FDI that will help you take action on those inaccurate cases in your file and get them deleted or updated, thus increasing your credit score.

Lastly, once you have educated yourself and taken some small steps to getting your credit file in order. You need to look at the bigger picture of HOW you are using credit. It is important when you have large purchases like a car or a house. However, you should refrain from accumulating large balances on credit cards that usually have very high interest rates. These should only be used in an emergency OR if you are going to pay off the balance each month. Otherwise, you are paying the credit card company to borrow its money, and the longer and the more money you borrow, the more it is going to cost you!!!!

Dream Big: How to START improving your CREDIT!

There are three main credit bureaus, Experian, Equifax, and TransUnion...and what I want to point out to everyone is that these are not run by the government, contrary to popular belief. These are COMPANIES! These are FOR PROFIT, companies that collect data from various sources and sell their reports to lenders, individuals, etc. (Wikipedia, http://en.wikipedia.org/wiki/Credit_bureau, Sep. 2008).
It is suggested by most financial counselors that you get a free credit report from each of the three burueaus each year. You can obtain that free credit report from this site: http://www.annualcreditreport.com.

Since there is imformation for millions of people within the databases of these companies, they use a unique algorithm to determine your credit score, which is a number between 400-800 that determines how likely you are to pay back debt based on your history of debt and credit. The higher your score, the less of a credit risk you are considered, and the most likely you will be able to borrow money for a mortgage, car lease, etc. for the least amount of interest.

You need to check your credit report, make sure things on there are correct, and if they are not, you need to hire a company, such as CreditTrax, a credit restoration and rebuilding company, to have these debts verified and removed if incorrect, or have them verified on your own, by writing letters to each creditor asking for the debt to be validated or removed. These negative hits on your report can cost you from 50-150 points.

As you use more credit, but not so much that it far exceeds your income, and pay it off timely, you will see your credit score rise.

For more information, talk to a credit counselor about these issues or for more information on Credit Trax, put your name and e-mail in the comments and I will send you some awesome information about getting back on track with credit and debt!!!

Dream Big: Credit 101

I don't know about you, but noone sat me down when I was a young girl and told me about the importance of money management, credit, and debt. I had a credit card in college that I charged to its limit. I have spent the rest of my life learning about credit through the mistakes I have made, and I am dedicated to helping those young people who will embark on careers and life outside of the confines of mom and dad, to understand the importance of educating onesself about the ins and outs of credit.

When you start off on the wrong foot with credit, you tend to spiral into the world of credit hell, and need help to get out of it. With finance charges, interest, and percentage rates rising year by year, you later find yourself with two to three times the debt you started with...and you cannot understand why!

First, all credit card and credit companies are in BUSINESS. They want to make money. So, they are, in essence, loaning you money to make a purchase. They make money by charging you for the length of time it takes you to pay that debt back. The longer you take, the more money they make, it is simple. So, unless you are actively trying to pay off the debt, instead of just paying the bare minimum to keep them from calling you, charging you late fees, and reporting you to a credit bureau, you will see yourself spiral into this never ending sea of debt. Soon all your incoming cash is going to pay off old debts, much of it for things you no longer use.

How do you get out of it.
First, you need to start using cash to buy the things you want so that you do not increase credit. Then, you need to downsize the things you buy, so you have extra money to pay off your debts.

Second, you need to make a plan to pay off those debts. Figure out how much you need to pay on each bill and an amount of time you plan to dedicate to paying it off.

Third, you don't just have to pay one lump payment, spread your payments out over two to three times per month. You are paying down the principal the more often you pay, and lessening the amount the company has in the principal to charge you interest on. Every little bit helps.

Lastly, start a savings plan where you save 10% of your paycheck each time you are paid. Soon, you will have an emergency fund for making unexpected purchases, and you will not have to rely on credit cards to cover these expenditures.

You are now one step ahead of the credit game. Check back for Credit 102...where we will discuss credit bureaus.