NEW YORK, April 26, 2008
With Times Tough, People Piling On Debt
Ray Martin Points To Pitfalls Of Turning To Credit Cards, Home Equity Loans To Get By
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Ray Martin (CBS/EARLY SHOW)
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Logic would dictate Americans would be tightening their belts in times like these. But, says the The Early Show's resident financial adviser, Ray Martin, such logic would be wrong.
He said on the show Saturday that more and more of us are turning to our credit cards and home equity loans just to stay afloat.
Some, pointed out co-anchor Chris Wragge, are even using credit cards to pay their mortgages.
And that, Martin said, isn't a viable long-term strategy. It is, he said, "borrowing from Peter to pay Peter, taking out debt to pay down debt. If you're in that situation, you've got to look at all the expenses you could cut back. You've to look at how you could increase your income. You may be in such a tough situation that you really have to get into legal protection (bankruptcy). ... The way to increase your cash flow is not to take on debt. If you want to increase your cash flow, the debt has to go."
Equifax Inc. and Moody's Economy.com report that the average credit card balance is up 9.5 percent in the United States. It's up even more in states hard-hit by the housing crisis: almost 15 percent in California and Florida, and more than 20 percent in Nevada.
Credit counselors across the country confirm that more people are using their cards to cover everyday expenses.
According to Martin:
Rising prices aren't the only reason people are racking up more debt. Lenders in general have lost a lot of money in recent months as more and more borrowers default on their debts. In order to protect themselves, lenders are tightening their standards, meaning it's more difficult to obtain home loans, home equity loans, even car and school loans.
So, many people are turning to the credit they've already been issued: credit cards. And the average home equity line of credit is up 8.1 percent.
A home equity line of credit works like a credit card, with your home as collateral. The bank approves you to borrow a certain amount of money, based on the equity you have in your home. You borrow this money whenever you want it, then repay it over time.
When credit was easy to obtain and home values were skyrocketing, many people obtained these lines of credit.
While rising prices and tighter lending standards partially explain the increased use of home equity lines of credit, there's another issue at play here: People are panicking. They see that other types of credit are increasingly hard to come by. They also know that some banks are freezing lines of credit, meaning that, even if the bank promised you a $30,000 credit line and you've only used $10,000, the bank can suddenly say, "Sorry, we're changing the agreement. You can now only borrow $10,000." Banks are allowed to do that and, for the first time in a long time, they're exercising their rights in some cases. So people are grabbing the money now, just in case it disappears later.
It's as if we were suddenly told apples won't be sold next week. If you like apples, you're not just going to buy one, you are going to buy as many as you can. This is the environment of scarcity, and it causes people to horde.
It may seem like a good idea to take this credit when you can, knowing it may not be available down the road. But it's not.
If you're just taking out a home equity line of credit to build a cash cushion, to hold onto "just in case," you're simply making a bad financial choice. Think about it: Once you take out the line of credit, you'll be paying an interest rate of about 6 percent on the loan. You'll put the cash in a "safe" location, meaning it will earn about 1 percent. So you're losing 5 percent of your money just to be "safe." A better alternative is to tighten your belt, even if it's painful, and build your own cash cushion.
As for the growing number of reports that people are going so far as to charge their monthly mortgage payments: If you've become that dependent on credit, you truly need to reassess. Using debt to pay debt is never a good strategy; it's a vicious cycle from which you'll likely never escape.
Unfortunately, there's no easy answer here. The alternative is truly facing up to what you can afford and acting accordingly. That may mean cutting out cable channels, it may mean downsizing into a home loan you can afford.
Everyone's situation is different, but it's time for everyone to face the music. No matter how you do it - whether it's cutting small costs or big ones - now more than ever, you need to have a cash cushion. You simply can't get ahead by relying on debt to bail you out.
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The secrets of tennis legend 
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See all 40 CommentsPosted by erasmus81
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With snopes.com debunking the NAU, why do people persist?
More importantly, the Europeans made a union and did it hurt them too much?
Posted by hypnotoad72 at 09:27 AM : Apr 27, 2008
I hear the Americans worrying about becoming one, in government and money. That would be my ONLY concern and that just won''t happen because the Canadian people will NOT allow it.
I am more concerned that it would be Obama that would go for this than Hillary. People automatically assume that Hillary will be the problem just because Bill was for the North American Union to begin with.
Posted by erasmus81
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With snopes.com debunking the NAU, why do people persist?
More importantly, the Europeans made a union and did it hurt them too much?
Where I live, that is all we have is paper ballots. Much better.
Also someone told me that if you are registered as a Democrat or whatever, that you have to vote that way, you cannot change to another party. That is absolutely ridiculous. Here we are not "registered" as anything.
Posted by erasmus81
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That is for the primaries only and not the General election.
In reference to the super delegates... they are, party affiliated, elected office holders -- Governors and Congressmen -- who also have a vote in who gets nominated.
And all this stuff about different voting places having problems with the voting machines and not enough ballots is pathetic. Geez, you would think they would be prepared, they knew it was coming for heavens sake. SCARY.
Posted by bgwinnett at 06:14 PM : Apr 26, 2008
I find this unbelievable.
Why do you basically have 2 elections?
Also someone told me that if you are registered as a Democrat or whatever, that you have to vote that way, you cannot change to another party. That is absolutely ridiculous. Here we are not "registered" as anything. The ballots have all the names for every party and we can vote for whoever we like. We can change our mind at the last minute.
And what is with all this delegates bullcrap anyways?
I find your voting system VERY SCARY.
Agreed. Reagan, Clinton, and both Bushies have been part of the problem.
erasmus81:
I think that Obama, Clinton, and McCain are equally a threat to the sovereignty, security, and the future prosperity of the United States! With all the time the media spends with these three clowns, the only REAL news is shoveled into just a few minutes each hour... while the rest of the time is reserved for the side-show called "the election cycle".
The "elites" also include Democrats as well as Republicans.
The two party system was the beginning of the end of the United States of America.
Our founding fathers have all turned over in their graves... more than once!
Their crime rates are lower, they have universal health care, they have legalized g`a`y marriages, etc, etc.
Merging with the US would ruin them - they''''''''ll never go for it.
Posted by hungry1968 at 04:55 PM : Apr 26, 2008
You are right, the people of Canada will not go for it. I have heard many Americans talking about the North American Union and how they are worried about becoming ONE and that our money will be the same.
AIN''T GOING TO HAPPEN. The people will not allow it.
Many Canadians, along with the rest of the world, are shaking their heads right now at the U.S. but when it comes right down to it, Canada would not desert the U.S. in times of trouble. We would like to kick your a-s-s sometimes for some of the things you do but hey, what are friends for, right?
LOL
Posted by bgwinnett at 05:41 PM : Apr 26, 2008
How about the dollar bill (LOL!!):
http://bointboint.files.wordpress.com/2007/08/amero.jpg
LOL
Posted by bgwinnett at 05:10 PM : Apr 26, 2008
...........
Precisely why the Bush regime has done what it has done to our economy. If things were rolling along just fine (economically) as it was in the late 90s, then there would be nobody willing to accept the "marriage" of Canada, Mexico, and the U.S.
But the elites have this planned very carefully...
...create a dire situation (a huge recession/depression) and then convince the masses that things will only get "better" if the North American countries "join forces".
Conspiracy theory? No.
Just a clear realization of how our government lies to us for the purpose of power and control.
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