With recent months as economically challenging as they have been for the mortgage and lending industries and the housing market, it should come as no surprise that expert economists and financial thinkers are keeping a close watch on the credit card debt situation. Many are concerned that credit card debt could experience a similar bubble burst type of disaster, meaning even more losses for financially struggling lending institutions.

According to a widely published January 23, 2007, Associated Press report, Capital One experienced significant fourth quarter profit loss. One of the nation’s leading credit card companies, Capital One saw a 42 percent reduction in profit as compared to the previous year’s fourth quarter earnings. American Express also, according to recent reports, experienced fourth quarter losses of just under 10 percent. Some fear that this could be a part of a trend, as financially strapped consumers struggle to make ends meet.

The New York Times recently reported that “credit card debt is growing at the fastest rate in years,” pointing out that the rate of growth “may signal coming trouble for the banks that issue them.” According to MarketWatch.com, this increase in debt seems to be because “consumers loaded up on credit-card debt to make up for a loss in the purchasing power they once wielded by refinancing mortgages during the real-estate boom.” Delinquencies in credit card debt payments are starting to edge up, and not only among those with bad credit.

Lenders and investors throughout the word are still staggering from the blows they took during the bursting of the housing bubble and the mortgage and lending meltdown, and most economists agree that neither of those situations have reached bottom yet. With the potential financial danger involved with a similar crisis happening in the credit card market, there will be many eyes – those in America and beyond – watching those numbers during the next few months.

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Are you in debt or have some other type of financial burden you just want to hide in the closet? Trust me on this. You are not alone. When you finally accept that you are in a financial bind, the faster you can work at removing it from your life. Before I moved to Orlando, I had to pump in $8,000 into fixing up my rental property after my previous tenants did some pretty big damages to the house. This situation evaporated all my savings and I started to live on credit. To make things even worse, a business I was partnering with ended up terminating our agreement and totally removed any type of monthly cash flow. I can honestly admit that this was one of the hardest times of my life. I didn’t know what to do, which led me to a small type of depression.

I took even more struggle for me to actually realize what I had to do to get the ball rolling in the right direction. Being in debt, spending over 40 hours a week repairing my rental house, and having no income really threw a wrench in my plan on being financially independent. My sister-in-law said to me that “There’s a big difference between successful and unsuccessful entrepreneurs. Successful entrepreneurs find any way possible [legal of course] to get out of a situation on top. Unsuccessful entrepreneurs give up and cry about their situations.” I was acting like an unsuccessful entrepreneur. Having a negative outlook on the scenario will always bring a negative outcome. Think positive and ask for guidance from people that have gone through a similar situation. Remember the first step to any problem is admitting it’s a problem.

I needed to think of ways to get out of my mess and come out on top. Originally, I tried to handle everything at the same time. I needed to get new tenants, create a case on my previous tenants, find a job, get money, repair my house, and at the time, keep my girlfriend happy. As all of you know, I didn’t resolve this situation without lots of bangs and bruises. I am still in debt from all the house repairs, I didn’t end up getting any money from the old tenants, and I lost my girl. Was I successful in the overall situation? I think so. I currently have incredible tenants, I have a new job in Orlando, and I am paying off my debt slowly but surely. I learned that you need to handle everything like an individual project. Complete one thing at a time and then move on. In my situation, I needed to get new tenants, but first I needed to repair my house so I could get people in there. So repairing my house was the number one priority. After that, things started to fall in place.

Now that that part of my life is complete, I can reflect on the decisions I’ve made and understand my mistakes. After analyzing the past year, I realized that this was all spun from a poor decision I made last year. Renting out my house without doing proper due diligence really smacked me in the face. If I tried to find better tenants, I wouldn’t have had to throw in all the money and go through all the stress that came from it. With every huge financial decision you need to take your time and reflect. It would have been better for me to pay one more month of the mortgage and try to find better tenants; instead of renting it to bad tenants.

Just remember to face your fears before 2008 and handle them accordingly. Don’t be afraid to ask questions to people that know and always learn from your mistakes.

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We all know of many people that are forever dumping money into high risk investments trying to beat the market. Unfortunately, most people don’t even come close, due mainly because of the investors egos. Many people feel that they can time the markets (meaning get in and out at the right time).

The problem with this strategy is that people are emotional and have a hard time selling when a stock is up. Look at Nortel for example, near $800 in stock value fell and fell as low as $1. I’ll let you guess when the most people entered this stock and when most bailed.

There must be an easier way to get a high return without playing all the stock market games. Many people in the US have credit card debt. On the average most people carry a balance of $8000. With an average rate of 14.56%! Assuming no compounding, that’s $1165 per year that you’re losing. I challenge you to find another investment with that security and return! Think about it. Pay off the debt before you start throwing money in the stock market. When you have credit card debt with a high interest rate, your personal return is still 0 if you’re investing in stock (Your stock market return 11% your credit card interest rate 11%). Pay it off then invest.

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I’ve read a lot of bloggers views on why 0% offers are such an attractive deal. Some make a pretty good argument on how to make “decent” money by following a pretty easy plan to receive interest on the borrowed money. This seems attractive at first, but the negatives really do outweigh the positives.

Here’s a quick list of the positive reasons.

Extra money- You will receive an extra $10 to $40 per month after all is said and done.

Making money off someone else’s money -Leverage is usually always good.

No money down option -You don’t have to put up any financial backing/money or collateral/tangible asset to earn interest.

Here are the negatives I can think of on the top of my head.

Huge financial responsibility -Can you discipline yourself to stay on top of the minimum payments and not rack up any other kind of debt? This is very hard to do for 99% of the American population. Just because it’s free money doesn’t mean you don’t have to make large monthly payments to amortize the debt.

Having the extra cash flow - Can you make the large monthly payments on top of your regular bills? This can pose a big problem for most people. Your minimum payment can reach up to $300 bucks a month! Here’s a simple solution for this problem. Just payback the loan with the money you borrowed, but you will be cutting into your gain (which that would totally suck).

Is it really worth it? - What happens if you couldn’t afford one of the monthly payments because your car broke down and you need the extra money to pay for the repair costs? What if you become incapacitated or lose your job? Your interest jacks up and you no longer qualify for the 0% offer. Your minimum payment could easily triple in one month and for the life of the card. These issues can easily spring up on the drop of a dime.

If you really want an extra $400 dollars per year, consider investing a little more and spending a little less. Learn the rules about retirement accounts to save money on taxes. You can certainly be $400 dollars richer by cutting out random purchases for six months. Shop online for things you buy at a store and learn how to bargain on pricing! The gain is not substantial enough for me to throw on a couple hundred pounds of stress on my back. If you really want to be cheap, learn how to conserve on things you’ve never even thought of.

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Taxes can be a burdensome task if you do not have everything set up correctly. In December, I decided to rent out my house as an investment property but totally forgot to set up a new account and activate a new credit card for the property. Thank God I remembered only three months in; instead of a year later. If you have an investment property, here are some good reasons why you should open up a new account too.

Distance yourself from the bills: You need to keep your finances separate from your investment property’s finances. “Never mingle rental income with your personal funds. Learn the law in your state about handling tenants’ deposits. Some states require a special escrow account. If not, keep the money in a separate savings account. “It’s extremely important that landlords — I don’t care what state you’re in — don’t treat it like it’s your money,” says Edwards.”

Get a credit card: If you get a separate credit card for your investment property, it will be much easier to track expenses. At the end of the year you can calculate how much extra money you’ve put into the house and possible write-it off on your taxes. I would also highly recommend using this credit card to pay for your reoccurring bills from the property such as: home warranty fees and any kind of maintenance fees. 

Bill pay the bills: Having everything done automatically can reduce your stress levels big time, so pay the investment property’s bills automatically through your checking account. Bills should include: mortgage, credit card, utilities*(avoid paying your tenants utilities), homeowner’s fees, and repair cost.

By separating your regular account from your investment account, you should save yourself a good amount of time and money when tax time comes around. *eFIPO’s Rule* Multiple transactions is a good thing when it comes to an investment account. A better paper trail can save you if you ever get audited.

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First Quadrant- Debtor

Whether you’re in college borrowing student loans, or you’re in the workforce with a ton of credit cards, you will be regarded as a debtor to all bankers. Why do some people fall in a hole of debt, while others manage to rise above it all? Sometimes you can’t really stop it. You were born into a lower income family and you’ve had to pay your way through life. I call these debtors the diamonds in the rough. These types of people have the ability to transform their debt to knowledge later on in their lives. They know the true value of a dollar and they usually try their best not to blow their money on random things.

On the other hand, you have this type of debtor that ends up blowing even more money on stupid things because they don’t know any different. They will spend all their money on a depreciating asset¹ and then use their credit cards and loans to make it “pimped out”. “Pimped out”is just another word for stupid spending. Usually, these types of people are very generous to their friends at a young age. They usually pay for drinks at the bar, fast-food for friends after the bar, and have massive parties at their place when the bar is closed. I call these types of people the live-in-the-now debtors. They don’t think of the long term liability they are getting themselves into. I worry a lot about the live-in-the-now debtors. Unfortunately, they are usually the ones that file for bankruptcy before their 26^th birthday.

Similarities between most debtors

• Look at their minimum payment as their actual payment.
• Spend 15-20% more than what they make.
• Eat out more than they eat in.
• Present thinkers instead of long term thinkers
• Postpone paying off their credit cards and keep more cash on hand.
• Have trouble sleeping at night because they worry about paying credit card bills
• They have addictive personalities i.e. drinking, gambling, and so on

Solution

The first step to reach the Check Casher quadrant is regulating your spending habits. Stop using credit cards to pay for things. Go on a cash only budget. If you need help if your budget, please take a look at this post. When you’re on a cash only budget, once you run out of money, you run out of money! You can’t rely on credit cards to bail you out this time. A cash only budget teaches self-discipline and can cure your debtor type of personality. Your big bills need to be paid before you start paying for the small stuff. Your rent or mortgage, food and necessary bills come first! Here’s a rough budget for reference purposes.

Slowly pay for your credit cards till they reach $0 balance. This might take three months or even three years depending on your debt level. After you reach the $0 balance, you can jump to the Super-Savers quadrant. Give yourself a high five! Now you have to learn how to become an Intelligent Investor.

*eFIPO’s Rule* When you’re a debtor, do not buy any thing you don’t absolutely need!

¹ Cars, TV’s, stereo systems

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Thanks to the web, finding good deals on travel has never been easier. There are millions of websites that will offer you wonderful rates on cruises and air travel, but sometimes the company’s direct site will offer you even better deals.

For instance, I will be taking a cruise in March so I have been shopping around on Cruises.com and CheapCruises.com for good deals. The rates ended up being the same on both sites, and each site offered some upgrades that I didn’t end up qualifying for (such as the age 55 & up deals). After surfing through all the “discount cruise sites” I personally called Carnival Cruise Lines and asked if they offer deals to previous sailors. They told me I could get an upgraded room for a discount value.

When you do have your vacation spot picked out, find out how you can get deals with the financing of the trip. A lot of credit cards offer points or cash back when you reserve the trip using your card. I even found out that just having an American Express card offers you an even lower discount. Discounts are everywhere, so don’t just assume the advertised rates are the best; research the prices and find the deals!

If you already have cash saved up for your big vacation, stash it away in your online savings account. If you don’t have the money for your trip, read my previous post on how to save money for a trip. Vacations are essential to having a fun and enjoyable life. Finding deals on vacations are life’s little bonuses.

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Do you know how much money you should really have in your checking account? There are many answers to this question because it’s really about personal preference, but there is a financially correct answer to this question. Here is how your account should look like if you don’t have a huge amount of expenses.

Checking account- No more than $100
Savings account that is directly linked to your checking- No more than $1000
High yield savings account that indirectly linked to your checking- The rest of the money

*eFIPO’s Rule* Try to get all your expenses¹ moved to the same week as your rent or mortgage payment. This is just for simplicity sake. You could also have them split up by paying your mortgage/rent the first week of the month then paying for your expenses the third week of the month. When you receive the bills for your monthly expenses, transfer the money from your high yield savings account to your checking account and pay your bills online.

If you use credit cards correctly this will be an extremely valuable tool. Paying for things without your own money, and receiving benefits² by paying off the credit card at the end of month is incredible.

You are actually losing money if you have all your funds sitting in your checking account. Here are the reasons why:

1. You aren’t making interest on your account. If you’re making interest on your account it’s no more than .5% which is nothing. Having most of your money in a high interest savings account is the way to go.

2. Time value of money. I know this doesn’t seem like a huge problem on a month to month basis, but it still counts.

3. You aren’t increasing your FICO. Having a lower credit score will increase your fixed expenses later on in life. So get with the program and learn how to use credit cards wisely.

4. Your missing out on some good rewards. I get 3% back on gasoline, food, groceries and receive 1% back on everything else. Not a bad deal. It’s free so why not take full advantage of it.

¹Credit Cards, utilities, ect…
²Cash back, rewards, and of course an increase in your FICO

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Is there one particular retail store you purchase all your electronic products? If you answered yes to the previous question, are you enrolled into their reward program and credit card? A lot of retail stores such as Best Buy, Circuit City and BrandsMart offer credit cards that award you gift points when you purchase in-store products and services and outside purchases. I like to shop at Best Buy and Circuit City, but I decided to get the Circuit City credit card because it rewards you 5% on every purchase versus the 4% through Best Buy. BrandsMart only you gives you 2% for purchases at BrandsMart USA ewww. What a bad deal. All three companies’ credit cards offer a 1% return for outside purchases which isn’t that bad.

Here’s a quick breakdown on your rewards points if you purchases a $1000 at all three retail stores.

• Circuit City -$50  Winner
• Best Buy- $40
• BrandsMart- $20

Another reason why I decided to go with the Circuit City card is because I have a lot more money invested in the company. I truly believe if you like a store enough to purchase products from them on a regular basis, why not purchases shares in the company? It’s a win-win situation.

This is a quick and easy way to save some money while rewarding the consumer for company loyalty. Customer loyalty is going to be the concentration for retail stores to make their profits in the upcoming years. *eFIPO’s Rule* Just because you signed up for the credit card does not mean you can go on a shopping spree. Respect credit cards and they will respect you.

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I know so many people that are struggling to keep their head above water when it comes to their student loan and credit card obligations. I am far from perfect, but I have a plan to totally get out of debt, and at least I have appreciating assets. Some of these people make more than twice the amount of money then I do; yet they have three times the amount of debt than me. How and why does this happen? I mean we go to the same places, see the same people and party the same amount, but I am not drowning in the kind of debt they’re in. How do these events come into place? Well after long discussions with these individuals, because they finally asked for my help, I found a few links that tie them together. Here are a few things you should avoid so you don’t fall into the same situation.

Avoid overspending when you go out to eat or at bars. This will get you into trouble all the time. Stop acting like your some kind of celebrity when you are at the bar. No one cares how much you are able to drink and the amount of drinks you buy at the bar. *Another thing for the guys* If you run into a hot bartender that acts as if she is interested in you. Unfortunately, your drunken state actually thinks you have a chance and you decide to over tip her by a large amount to make it seem like you’re made of money. Trust me she’s more interested in what’s in your pants, and NO it’s now what you think. She wants to see that a $40 tip on a $60 tab. Don’t fall victim to the fake number gag, guys.

Stop buying crap you don’t need. eFIPO’s definition of crap: Anything you really cannot afford, but still decide to buy because it’s the new “it” item. Examples include, but not limited to: purses, jewelry, jeans, shirts, TVs, cars, huge stupid sun glasses, stereo system, liquor, and anything else that makes you look like a celeb wannabe.

Yeah, I’m pretty sure you don’t need that Louis Vuitton purse when you can’t even afford to pay your utilities. And being the nicest looking bum on the street doesn’t give you a lot of street cred, so stop buying stuff you can’t afford just to look like a celebrity that has an eating disorder.

Are you too good for the grocery store? Hey buddy, I’m pretty sure your credit card will be gladly accepted at your nearby Kroger. You don’t always have to eat out and spend your hard earned money on fast food and steak. Reality called, they told me to tell you that credit cards aren’t free money cards. People will spend an absurd amount of money because they are too lazy to go out and by food and actually prepare a meal. I understand how hard it is to make a turkey sandwich, but give your credit cards a break for once! I know that fueling the American economy by spending all your money must be on the top of your priority list when you’re broke, but saving some money every now and then won’t affect it that much. If you didn’t see the sarcasm in the past few lines, please re-read them.

These are just a few things I’ve piled together. If you like them, I will try to think of some more. Thanks and have a great day!

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