Credit Repair Guide

Sometimes people are too close to their own situation to make rational decisions about how to cut costs or how to make some extra money to make ends meet. Unless you paid a lot of attention during tougher economic times – or watched your Depression-era parents save everything for recycling and reuse while watching every penny – you may not know how to make better use of your money.

For many, the obvious expenses have been reduced. More and more families are eating at home; many of them are having to learn how to cook. Eating out is expensive, whether you’re eating fast food or trying to eat healthy. An added benefit of eating at home is you have better control of the health factors of what you eat. Fast food has a lot of fat and sodium, as does prepared food that you buy to fix quickly at home. Cooking at home is not only less expensive – it’s better for you! Eating out in restaurants is definitely healthy – but also more expensive. If you’re looking to cut costs, start with your food budget. Eating out at a restaurant should be reserved for special occasions.

Auto dealers are making unprecedented deals on cars and car loans – but can you really afford it? The sales pitch is the same one that got many consumers in trouble in the first place! The loan may be 0% – but you still have to make the payments every month. If you have to have a car and you’re unable to get a used car loan at a decent rate, it may make sense to buy a new car at 0% – but plan on keeping the car for a very long time, so shop carefully. Remember that new cars lose a significant amount of their value the minute you drive them off the dealer’s lot. New or used, buy a car that you trust will be reliable for years after you’ve finished paying for it. Go to the library or go online and check consumer ratings so you select a car with a good record as far as reliability and low maintenance. Your goal is to get the best deal not only in financing, but on the car price and longevity.

Reconsider entertainment costs, starting with the cable TV. Do you really watch all the channels you pay for, enough to make it worth the monthly fee? Many of us have become so adjusted to the monthly costs we pay that we’re immune to them. Re-evaluate your channel lineup and consider dropping premium channels – you can always rent the DVDs when they’re available or watch the shows online. Going to the movies is also expensive because it isn’t just the price of the ticket. Do you really need to see the latest movie as soon as it’s released? Most likely, you’ll survive until it comes out on DVD, and then you can make a family night of it and make your own snacks instead of paying for high-priced concession stand snacks.

Sit down and write down your monthly expenses so you can see where your money goes – then start sacrificing or renegotiating. You can survive the economic downturn.

As the housing boom peaked, consumers saw credit limits raised and lines of credit on their homes offered at attractive rates. Banks and lenders offered new card accounts at record rates, then enticed consumers to transfer card balances to equity lines of credit.

Ads in magazines and on television offered up a lifestyle that was inviting and exciting – all paid for on credit. You could buy whatever you wanted, go on exotic vacations if you only had the right credit card, which lenders were happy to provide. Talk of a housing bubble was drowned out by images of living the good life and moving up. Consumers were not only encouraged to lap up increasingly easy credit cards and rising credit limits, but the promise of a solid investment in a home bolstered by rapidly rising home values encouraged many into homes with 100% loans, no money down and low interest rates.

Average credit spending rose, while median pay was declining and cost of living was rising. Households accumulated more and more credit cards. Banks doubled the amount of new cards issued to customers with tarnished credit, the group most likely to tap into additional credit and the least able to afford it. Banks encouraged customers to use their inflated home values to pay off these mounting card debts by using equity lines of credit. Falling interest rates encouraged consumers to refinance and they, in turn, were encouraged by lenders to take equity out of their homes.

All this came crashing down when the housing bubble did indeed burst. Unfortunately, the reckless extension of credit placed many consumers at financial risk, contributing to the vulnerability that many are currently feeling.

Consumers now find their credit lines being closed or reduced, with a consequent reduction in their credit score that limits their ability to obtain more credit; and which may, in fact, affect auto insurance rates and even employment opportunities. Using the home equity to pay credit debt or finance a lifestyle many couldn’t afford put homes at risk as home values dropped, resulting in many being “upside down” on their home loans. Many are burdened with loans they can no longer afford on homes they cannot sell for an amount anywhere near what they owe on them.

And those least able to afford the credit are now squeezed by banks assessing higher interest rates at a time when the Fed is lowering interest, as well as increasing penalties for late payments and over-limit charges. People with nowhere else to go are being forced to pay high interest on the credit cards they’ve come to depend on to meet their daily living expenses.

At the heart of the problem is a double jeopardy: lenders don’t make money unless consumers are spending money, and consumers are spending money they cannot afford to spend, using lines of credit they shouldn’t have been given in the first place.

Subprime borrowers tend to use more of their available credit than others and are more likely to have little experience or understanding of the pitfalls of credit.

If you are already in trouble because of credit spending and reduced home values, your only option may be to negotiate with lenders for the best possible rate while paying off credit cards. This most likely requires reducing your overall spending to an absolute minimum, Eliminate any costs that aren’t necessary and seriously reconsider whether or not you HAVE to have some of the services you are currently paying for, such as cable TV. Remember – when you have achieved financial stability again, you can always add these luxuries back in.

Consumers should take a lesson: remember that the economy always cycles. Just because lenders want to extend you credit isn’t a good reason for using it. The equity in your home is money in the bank, but it will increase and decrease with economic cycles. It’s an investment, but it’s also where you and your family live. Don’t place it at risk by spending on things you don’t really need!