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For what seems like ages financial gurus have been lamenting that consumers rely too much on credit cards, and finally people have begun to listen — all it took was a failing economy! The Federal Reserve announced on Tuesday that consumer borrowing fell in August for the first time since 1998 and that was before the crisis worsened in September. Consumer borrowing is defined as loans not secured by real estate, and auto loans and credit cards were the two areas that led to a decline in consumer credit.
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While this episode of Maxed Out was filmed many months before the recent slew of economic news, the home equity credit trouble the couple has in the show is connected to what's going on today: According to The New York Times, Americans owed about $593 billion in home equity loans in 2003, but the current related debt is $1.1 trillion. The couple in this Maxed Out, Rhonda and Les, make a combined income of $104,000 but they've used up their total $100,000 home equity credit line and don't have a penny in savings.
When financial guru Allison Griffiths asks the couple why they came to her for help, Rhonda doesn't skip a beat with her answer that "he spends too much," to which Les turned the pointed finger back around.
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While there's no doubt the heads on Capitol Hill are spinning with what's been happening in our economy, it's not exactly a picnic for those of us feeling like we have a million and one unanswered questions. Watching big banks collapse and listening to what the news tells us was a horrendous day for the market, followed by the worst day ever, doesn't do much for the people anxiously sitting on the sidelines. Here are three things you can do right now to get a grip on your finances.
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The years of consumer excess have finally begun to take their toll on retailers — they constantly asked people to sign up for credit cards in exchange for discounts, and now that strategy is backfiring as consumers struggle to pay back their debt. Hopefully those of you that are carrying store credit cards in your wallets are not part of the growing population that are falling behind on their store credit card bills.
Stores like Target, Home Depot, and Macy's are caught in a bad place going into the holiday season.
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This episode of Maxed Out is about Alicia, a 30-year old woman who works in advertising and has trapped herself in a pattern of binge spending. A couple years ago she was $20,000 in debt and got a consolidation loan she got to help her pay it off. After paying down about $10,000, she started using credit cards again and increased her debt load to $20,000 once again.
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Fifty-four percent of you are carrying a credit card balance, and many of you currently not carrying credit card debt may have been in the red at some point. What pushed you in to debt: Was it a shopping habit, paying bills when you didn't have a job, parking tickets, furniture, or a combination of other things?
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You may have valued some classic college photos as being worth a thousand inexplicable words, easily appraised by your fond memories. Calculating your net worth is a little more complicated, but it simply comes down to determining the difference between your assets and liabilities.
Just like a big corporation working their balance sheet to report to shareholders, you have a personal balance sheet that indicates the bottom line of your financial health.
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When you consider taking out a loan or borrowing money by using your credit card, think about personal finance guru M.P. Dunleavey's powerful debt math. She estimates that it takes $16,400 in income to pay off a $10,000 loan at 15 percent interest.
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Personal finance guru Dave Ramsey developed the debt snowball plan as the debt repayment part of his method for getting finances on track. The plan is based on psychology and relies on determination. The debt snowball plan goes as follows.
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