5 Reasons to Use Debit Instead of Credit

Use Debit Instead of Credit

According to The Nilson Report, debit card purchases are expected to increase 13% in 2008 to $1.2 trillion versus a 3% increase for credit card purchases or $1.9 trillion. This year, Visa debit card transactions could exceed credit card transactions.

For banks this is not good because they are not able to collect interest on debit transactions but helps their accounting department because they don’t have to report any losses when consumers fall behind on credit card payments.

However, banks also charge overdraft fees for debit card transactions when consumers do not have enough money in their accounts to cover an item purchased. Fourteen out of fifteen of the largest banks in the U.S. charge overdraft fees for consumers who exceed their funds.

Overdraft fees ranges from $20 to $35 per occurrence. Banks are responding much quicker to consumers who exceed their funds by charging overdraft fees the same day or the next day. In the past banks would wait a few days before charging the overdraft fee.

To combat this practice the Federal Reserve has proposed rules to restrict these abusive practices by banks.

Here are 5 reasons why use should use a debit card versus a credit card:

1. You don’t pay interest or finance charges

2. You can only spend the money you have in your account, however, some banks do allow you to exceed your funds but you are charged an overdraft fee

3. You can use debit cards or Visa check cards at many of the same retailers that accept credit cards

4. Helpful for those with bad credit who are unable to get approved for a credit card

5. Can be used like a credit card by swiping the card without entering a PIN

5 Ways Save Money on Heating Costs

This winter season which begins October 1 and ends March 31, gas and oil heating bills are expected to increase. According to the Energy information Administration the average American household will pay $1,182, an increase of 19.8% from last year.

Americans who live in the Northeast and heat with oil will pay on average $2,725 this winter, an increase of 37.1% since last year. The national average price for heating with oil has increased more than 198% from 2003-2004 to 2008-2009.

Americans who live in the South who heat with propane will pay on average $1,578 this winter, an increase of 18.7% since the 2003-2004 winter season. The national average price for heating with propane has increased 100% from 2003-2004 to 2008-2009.

Americans who live in the West who heat with gas will pay on average $684 this winter, an increase of 23.8% since last year. The national average price for heating with natural gas has increased approximately 60% from 2003-2004 to 2008-2009.

Americans who live in the Midwest who heat with electricity will pay on average $1,051 this winter, an increase of 4.7% since last year. The national average price for heating with electricity has increased 34% from 2003-2004 to 2008-2009. Here are 5 tips to help reduce heating costs this year.

1. Annual check. Have annual checks on your heating system before the winter season begins. It is best to get a checkup during the summer months when business is slow.

2. Insulate. Insulate your attic and any others areas that are drafty such as your attic, ceilings, walls, crawl spaces, hot water pipes, furnaces, ducts, etc.

3. Automate. Install a programmable thermostat and keep your setting on 68% Fahrenheit or lower during the winter season. Lower the temperature setting while away from home and during the day. This can save 20% on your heating costs.

4. Seal drafts. Seal any drafts around windows, chimneys, pipes, light fixtures, doors or electrical outlets which can reduce your heating costs by 30%.

5. Use a wood burning or pellet burning stove to heat your home.

Help for the Unemployed

Due to current recession and the closing of many companies, the number of people unemployed has reached new highs. The unemployment rate is 6.5% meaning over 10.1 million Americans are out of work. Generally the November and December holidays are a time to spend with family and have fun but this year the holidays won't be like past years.

Many Americans are feeling the burden of the bailout plan. However, there is some relief. On November 21, 2008, President Bush signed the Unemployment Compensation Extension Act of 2008 which extends Emergency Unemployment Compensation to 20 weeks which will help some Americans through the holiday season. For states with high unemployment rates such as Georgia it creates a second tier of 13 weeks of compensation for individuals.

Mortgage Helps for Americans

The government and mortgage industry are launching a new program effective December 15, 2008 to help homeowners' stay in their homes by renegotiating delinquent loans held by Freddie Mac and Fannie Mae. Almost 1 out of every 6 loans held by Freddie Mac and Fannie Mae are delinquent.

To qualify for the new program homeowners will have to be at least 3 months behind of their mortgage and have to owe 90% or more of their home's current value. Homeowners who filed for bankruptcy are not eligible for the program. In addition, homeowners' interest rates would be reduced so their mortgage payment is no more than 38% of their monthly income (similar to a plan IndyMac introduced in October 2008), loans can be extended for 30 to 40 years or some of the principal can be deferred interest free. Contact Freddie Mac or Fannie Mae to get more information or contact a HUD counselor at 888-995-4673.

So far, 2,795,920 people have filed for foreclosure this year. Millions of Americans need help and the government and other banks have begun implementing plans to help homeowners but in some cases it is too late. There should be a fine charged for those banks that did not help customers before the bailout plan and before these new programs have been or will be implemented.

Why are banks allowed to behave in any manner they choose and nothing is done about it. Banks should also develop programs for homeowners who lost their homes because they were unable to get help to save their homes. Is anyone concerned about the Americans who lost their homes because the banks refused to help them? We should be. I applaud the government and banks for developing plans but I fear it will not be enough. If the government can help bailout airlines and loan money to foreign countries surely they can help all Americans stay in their homes. Write your state house of representatives and congressman and express your concerns.

A Unique Option to Survive the Bailout

There are several conventional ways to save money that we hear about over and over again such as using coupons, buying things on sale, shopping at discount stores, buying online, reducing your expenses, and living below your means. All of these are great ways to save money and survive a financial crisis in normal times. Unfortunately, we are not living in normal times and it will take some creative thinking to survive the current recession.

We, as Americans will have to change the way we think about money and how we spend it. We must change our bad spending habits to ensure we have a decent life in case an unexpected expense occurs such as a medical condition, job layoff or death of a loved one. We must also position ourselves for retirement so if social security is not available we can still survive and have enough money to cover our basic living expenses.

More than 2.6 million Americans have foreclosed on their homes this year and over 960,000 Americans have filed for personal bankruptcy. These statistics are alarming. One way to prevent being one of those statistics is using a radical approach called the Voluntary Simplicity Movement or simply living.

The Voluntary Simplicity Movement started in the 1960s and has grown widely with approximately 20 million people following all or some aspects of the phenomenon. Simply living is examining every aspect of your life to determine what is most important and eliminating the rest. Simple living has various aspects such as ecological, technological, financial, etc. Many Americans cannot embrace this concept out of fear, embarrassment, and reactions by family and friends. Living below your means is how many entrepreneurs got their start and became successful. They understood the sacrifice that needed to be made to achieve their goals.

The Frugal Simplicity aspect of the Voluntary Simplicity Movement means spending in terms of needs vs. wants, cutting back in various areas of your life – reducing expenses, and being responsible with your spending. Shopping frugally and living below your means reduces stress related to debt and helps to move towards a debt free life and financial independence.

Many Americans have tried creating a budget or spending plan, use coupons or cutting back on some expenses. Unfortunately many have started with the right intentions but failed to continue performing those actions as a lifestyle choice and reverted back to their old bad spending habits.

If you have tried everything else or felt like no other option would work – don't file bankruptcy or foreclosure. Try the voluntarily simplicity movement for 30 days and track the following: your stress level after the 30 days, how much money you saved, how much debt you were able to pay down, how you felt after the 30 days. Even if you don't continue the Voluntary Simplicity Movement, hopefully you will have made a great change in your life about the purpose of money and how you can use it to create a better life for yourself. For more information visit www.simpleliving.net.

How IndyMac is Helping Consumers

Due to the current economic crisis and high number of foreclosures, approximately 2.66 million as of October 2008, many banks and financial institutions are helping consumers on a case-by-case basis. The process is very slow, resource intensive and frustrating.

IndyMac services more than 60,000 loans that are either more than 60 days past due, in bankruptcy or in foreclosure. Approximately 40,000 customers are eligible for the IndyMac program to help consumers with their mortgages. More than 3,500 IndyMac customers have had their loans modified reducing their mortgage payments on average by $380.

Establishing standard rules that a lender can apply can speed up the process and the lender will be able to help thousands of customers and restore the housing market at a faster rate.

Using IndyMac's program lenders modify a loan so that the borrower's new mortgage payment, including insurance and taxes, is no more than 38% of their pre-tax income as known as the debt-to-income ratio which was as high as 50% during the housing boom.

IndyMac can achieve this by lowering the interest rate, extending the life of the loan, deferring some principal to the latter years of the loan, or a using a combination of these methods to help customers.

To simplify the process for customers IndyMac sends loan paperwork overnight with a signature required upon receipt. The paperwork explains the customer's new loan terms, the interest rate and monthly payments over the life of the loan. The customer signs and returns the documents along with the initial lower monthly payment. The IndyMac program does not forgive debt.

IndyMac's program is now being applied to many delinquent loans owned by Fannie Mae and Freddie Mac. Bank of America has also developed a similar program that will launch in December 2008. The Bank of America plan was instituted as part of a settlement with state attorney general offices that sued Countrywide for predatory lending practices, which was acquired by Bank of America.

Bank of America hopes the program will help approximately 400,000 customers. The Bank of America plan will use a 34% debt-to-income ratio to calculate an affordable monthly payment for its customers, and may write down the principal balance of some negative amortizing loans.

Some housing economists warn that lenders should look at a borrower's other assets in addition to their debt-to-income ratio before restructuring a loan because "they will include people who shouldn't really qualify, and might exclude people who do".
"A customer with substantial additional assets and no other debt may have taken out a big mortgage that accounts for 45% of his income. The program will help this customer and not someone with a smaller mortgage and no other assets who also have student and car loans".

FDIC Chairwoman Bair thinks this foreclosure prevention program can also work for other banks.

Greenspan Takes Some Blame

On October 23, 2008, former Fed Chairman Alan Greenspan testified before a Congressional committee to discuss the current economic crisis in the country. He admitted that mistakes during his appointment worsened the current economic crisis. A quote from his testimony stated "those of us who have looked to the self-interest of lending institutions to protect shareholders' equity... are in a state of shocked disbelief."

Once appointed to his position in 1987, Greenspan immediately began pushing Congress to repeal the law implemented during the Depression that prevented banks from competing with investment banks in underwriting stocks and bonds. When Congress hesitated, Greenspan used the Federal Reserve's authority to allow banks to circumvent the law. Greenspan also opposed efforts by the Securities and Exchange Commission (SEC) to initiate modest regulation of the $1 trillion hedge fund industry.

Greenspan instituted the deregulation of the banking and financial system and the institution of mortgage ARMs in 2004. Greenspan admitted during his testimony that deregulation didn't really work and that it was flawed. Greenspan admitted that he put too much faith in the power of the free market and failed to foresee the self-destructive power of reckless mortgage lending.

However, Greenspan also placed blame on Wall Street companies that bundled subprime mortgages into 100 million dollar packages and sold them as mortgage backed securities. Global demand for the mortgage securities was so high, Greenspan said, that Wall Street companies pressured lenders to lower their standards and produce more "paper".

Greenspan also explained during his testimony that he did not anticipate the massive housing bust because we (he and other top economists) cannot see events that far in advance. "Greenspan explained that even after he realized there was a bubble, he never expected housing prices to decline so dramatically, because we had never had a nationwide decline in housing prices in the past.

Well Mr. Greenspan, if you are in disbelief how do you think the rest of the country feels.

How the Federal Rate Cut Affects You

The Federal Reserve cut the federal funds rate on October 29, 2008 by 1%, its 9th reduction in 13 months. The federal funds rate is the target interest rate for banks borrowing reserves (deposits in accounts with the Federal Reserve plus cash that is held in bank vaults) among themselves.

Changes in the federal funds rate influence the borrowing cost of banks and the returns offered on bank deposit products such as CDs, savings accounts, and money market accounts. Changes in the federal funds rate also dictate changes in the prime rate or Wall Street Journal Prime Rate.

The Federal Reserve began cutting rates to deal with the current economic recession in September 2007. Since September 2007 the rate has been reduced from 5.25% to 2%. The current rate cut is the lowest it has been in the last 4 years. The prime rate is now 4%. The prime rate is based on the federal funds rate and is a benchmark used to set home equity lines of credit, credit card rates, lines of credit, auto loans, personal loans, and some small business loans.

Rate cuts usually take several months before consumers can see the impact. The rate cut helps bank because it reduces their borrowing costs and they pay lower rates on deposits.

Consumers who benefit from the current rate cut are homeowners who are looking for fixed rate mortgages which are still low. Also, consumers who plan to stay in their homes for less than 10 years can still get ARMs to get a lower interest rate on their mortgages. All ARMs are not the same so make sure you do your homework to find the deal that right for you. Some homeowner's with existing ARMs may see lower mortgage payments the next time their mortgage resets. Contact your lender to get more information.

1929 vs 2008

Here is a quick comparison of The Great Depression in 1929 vs. The Financial Crisis (Recession) in 2008. You can voice your opinion about the conditions we are experiencing in 2008 on election day November 4, 2008.

1929 October 29, 1929 (Great Depression - Black Thursday)
1. Crisis called a Depression
2. 13 million people unemployed
3. Industrial production fell 45% between 1929 and 1932
4. Home building dropped by 80% between 1929 and 1932
5. 5000 banks went out of business between 1929 and 1932
6. Massive layoffs, unemployment rates over 25% in 1933
7. Home prices and income fell by 20-50%
8. Depositors lost $140 billion in bank deposits by 1933
9. Took 10 years to cure

2008
1. Crisis called a Recession
2. 3,720,000 people unemployed
3. Industrial production in September was 4.5% below last year’s figures
4. 16 banks went out of business and counting
5. Under 20 financial institutions have gone out of business and counting
6. Massive layoffs, unemployment rates of 6.1%
7. Home prices fell 16.6% since 2007
8. Depositors lost $2 trillion in bank deposits and counting
9. Estimated that 28 million people will use food assistance programs an increase in 26.5 million from 2007
10. Federal Reserve has dropped interest rates by more than 2.5 percentage points since August 2007
11. 2.5 million foreclosures and counting
12. 967,000 personal bankruptcies as of Aug 2008 and counting
13. Food prices rose more than 4% since last year