July 2009 - Posts - Dollar Stretcher Guest Bloggers
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July 2009 - Posts

  • High Credit Card Default Rates

    by Bill Hardekopf, CEO of LowCards.com

    A look at the default statistics released by credit card issuers helps explain why consumers are seeing interest rate hikes and decreases in their credit limits.

    Bank of America, the largest bank in the country, reported its default rate jumped to 13.8% in June from 12.5% in May. Defaults, or charge-offs, are the debts that a lender believes it will never collect.

    The biggest bank in America does not expect to collect on almost 14% of its credit card loans. That is a tremendous loss and it helps explain why Bank of America is raising rates, increasing balance transfer fees, and switching from fixed to variable rates on a number of their credit cards. They can't continue to lose money on loans without increasing revenue in a number of ways.

    Default rates and charge-offs are still weighing down the credit card industry, costing banks billions of dollars. The default rate is expected to grow as the unemployment rate increases.

    Following the credit card industry and cardholders has almost been like watching a couple during a divorce. Both sides have been hurt by the actions of the other. Cardholders are hurt and angry by the interest rate and fee increases, and the changes made by credit card issuers. On the other side, issuers are losing billions of dollars in unpaid credit card loans that they have to charge-off. Issuers have to make changes to be profitable. Add in upcoming regulations and increasing unemployment and it may be impossible to expect a reconciliation in the near future where both parties are happy with each other.

    Last week, banks and issuers released their monthly reports that included default rates. For some issuers, default rates remained about the same. While this could be seen as a sign of stabilization, it could also be a short pause as households used tax refunds to pay down credit card balances. Here are the default rates from other major credit card issuers:

    • Capital One's rate rose to 9.73% in June from 9.41% in May.
    • JP Morgan Chase defaults declined to 8.04% in June from 8.36% in May.
    • Discover's rate fell to 8.75% from 8.91%.
    • American Express defaults fell slightly from 10.0% in May to 9.9% in June.
    • Citigroup defaults remained unchanged at 10.5%

    Since the unemployment rate is expected to increase, some observers fear that industry's default rate could climb above 12% by the first quarter of 2010.

    Bill Hardekopf is the CEO of LowCards.com, a site that simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card. The LowCards.com Complete Credit Card Index is the most objective and comprehensive resource on the Internet which allows consumers to compare rates for all 1060 credit cards offered in this country.

  • A Retirement Strategy that Just Won't Work

    So, I’m at work the other day and I am talking to people about retirement and personal finance basics. I told them that basically I don’t want to work a job forever and I will most likely leave my current job within the next few years. I was surprised to find that most people I told this to laughed and asked if I was planning to win the lottery. This got me thinking. Is this how most people are planning to retire or leave work early? Do they realize that they could have so much more? After talking to more people and doing a little research, it became obvious that not only do most people not have plan, their ideas for attaining retirement are just down right ridiculous.

    I find it funny that a large group of people think they will get to retirement by winning the lottery. Perhaps funny is the wrong word, maybe I should say disappointing or unfortunate. Whatever the name, it’s not important. What is important is the fact that this is a “legitimate” plan for a large number of people. Actually, I was quite surprised to find how large of a number it actually is. Consider the stats below:

    In a 1999 survey by the Consumer Federation of America and financial services firm Primerica, they found that 40% of Americans with incomes between $25, 000 and $35, 000 a year thought that the lottery would give them their retirement nest egg. What is interesting is that the same study found that number to increase to 50% when the income is $15, 000 to $25, 000 a year. The study shows that people become more desperate and hopeless as their income decreases. Consider this: Let’s say you spent $3 a week on lottery tickets each week. If you put that in an investment at 8% for 25 years you would have $12, 557.38. I am confident that this will be more than your total lottery winnings for that 25-year period. The odds are very slim that you will win anything.

    The most popular lottery in Canada is the lotto 649. In this lottery, six different numbers are randomly drawn from a set of balls with numbers ranging from 1 to 49. Your odds to win are 1 in 13, 983, 816 or 0.0000000715%. Your odds of being killed by a dog are 1 in 700,000.

    If everybody in Canada played the same lotto 649 draw at the same time, only 2 people would win. Most people think that playing frequency will dramatically increase their chances of winning. Consider this: If you played the lotto 649 twice a week, every week, for the next thousand years, the chances of winning the jackpot are about 1%. The cost to play the lottery for that thousand years would be about $208,000 not considering a thousand years of inflation.

    I have heard that the lottery is a tax for people who can’t do math. I could not agree more. People who play the lottery don’t understand personal finance basics. I have never played lotto 649 and I intend to keep that streak for life. I see no logical reason to spend money on the lottery when I am 20 times more likely to get killed by a dog. And how many people do you know that have been killed by a dog? I rest my case.

    Brandon Schmid is a former financial consultant turned blogger. You can learn the secrets about money that the wealthy already know at his blog: www.howtomanagemoneytips.com/. You can also get loads of free tools, ebooks and financial calculators at www.howtomanagemoneytips.com/ebook.html. (originally appeared in HowToManageMoneyTips.com)

  • Community Services

    One thing I haven't heard you mention is that some community services will be available to people who have lost jobs. Food stamps is one. This can make a huge difference. You can find out if you are eligible online,  get the application online and have all of your documents ready to apply.

    I recently helped my son do this and he gets $200 a month food stamps. This has helped both his physical and even mental health, knowing he doesn't have to worry about food.

    He was also eligible for HeatShare here in Ohio. This is a loan program. He only heated one room to a comfortable setting with a small heater and  the rest of the house to 50 degrees to keep the pipes from freezing. Some of the programs are grants, not loans. You can learn about them online.

    Most of you have paid taxes for many years and will again, so don't hesitate to use these programs when you really need and deserve them. If you don't know how or where to apply, search Food Stamps Ohio (your state) or call your local City Hall for information.

    -- Jeneene

    Everyone is smart about something! That's why we have The Dollar Stretcher Guest Blog. If you have a story that could help save time or money, please send it by email to MyStory@stretcher.com

  • Cheaper Summer Cooling

    There are some ways to help keep cool in emergency situations that are no longer commonly known. Some of these could literally save a life in a heat survival situation. Some like drinking cold drinks and sitting in a bathtub of cool water are obvious. Here are a few many folks have forgotten about:

    • Use a "swamp" cooler. Put ice in front of a fan and it will add a chill to the air until the ice is gone and the remaining water gets to room temperature. Once the first ice melts, keep adding small amounts of ice to keep the water cold so it will continue to cool. Water at 34 degrees with ice standing in it is not that much warmer than ice at 32 degrees.

    • With a rocking chair, a simple rectangular frame, a couple of hinges and some eyebolts and cord and some cloth, you can make a punkah fan. Make the frame and cover with a cloth, so when it waves, it will cause a breeze. Mount above and slightly in front of the rocking chair using the hinges and tie cords to fan frame after tying to back of rockers. Run the cord up and to a couple of eyebolts or other connectors in the ceiling or wall then to the frame. When you rock the chair, your rocking will fan you. If you don’t own the place, just patch the holes. It will probably take about two hours to make and install. These can also be set up outside and the whole thing is attached to the tree.

    • Dampen a towel and put it onto a cookie sheet or other item that will contain the moisture and that you can easily rest both feet inside. Take off shoes and socks and cool your feet on the wet/damp cloth. This is pure bliss while sitting on a front porch. You can also spray a cotton sheet with water, then wrap it around you to cool you down. It is especially important to watch the elderly and the very young when the heat index is really high to keep them from getting heat exhaustion or heat stroke. Dampen a cloth, press it to the front of the neck, and then fan to help someone who has been dangerously overheated.

    • Use real talcum powder on an adult’s bed (it is assumed they know not to breathe in talc dust). Sprinkle heavily between the sheets to avoid that “sticky sweat” feeling of skin touching skin while you sleep.

    • Sleep on the ground in a place that was shaded in the afternoon. The ground will pull heat from your body if you don’t wrap up in most climates. Stay away from stone, asphalt, etc., as they hold heat until long after dark.

    • Take advantage of the normal morning, evening, etc. breezes in your climate. If you pay attention to the animals outside, they will usually show you where the most comfortable places are. It can be almost 20 degrees cooler under the tree on the side that never had baking sun hit it.

    • I like to keep slightly damp clean cloths frozen in a freezer bag in the freezer. Now that's a refreshing chill! Just dab yourself with it.

    - Deborah

    Everyone is smart about something! That's why we have The Dollar Stretcher Guest Blog. If you have a story that could help save time or money, please send it by email to MyStory@stretcher.com.

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