Thursday, July 26, 2007

Here It Comes

There's an article in today's WaPo that does a good job of explaining, in English, what's happening in financial markets. Here's the take-away:

"When people get scared, they tighten up all over," said A. Gary Shilling, president of the investment firm that bears his name. He said he expects housing prices to fall significantly further. "This kills consumer spending," he said of the credit crunch. "We think we'll be in a recession as a result by the end of the year. And that will spread globally because U.S. consumers still are the buyers of first and last resort for the excess goods and services produced around the world."

It's still not too late to take some steps to protect yourself.

*Quit buying stuff on credit. I mean it. Quit using your credit cards. You don't need 90 percent of that shit, anyway.

*Pay off any debt that you have. Here is how to do this. Make a list of every debt that you owe: student loans, credit cards, car loans, mortgage, etc. Next to each debt, write the interest rate that you are paying. Circle the number if the terms of the loan allow the lender to raise your interest rates. You can find this information out by reading your monthly statement very carefully or by calling the customer service number on the statement and asking them. Pay the minimum due each month on every debt except for the one with the highest interest rate. Pay as much as you can possibly afford to pay on that debt until it is paid off. Then, start in on the debt with the next-highest interest rate. You'll have to watch the debts that you circled to see if the interest rates on those go up.

*Get at least six months' net salary in a safe, liquid place such as a savings account, an interest-paying checking account, or a series of CDs. Take a second job for a while in order to do this if that's what you need to do. Skip your vacation trip this year if that's what you need to do. Sell off stuff if that's what you need to do. You've got to have a cushion as we head into bumpy waters. Having this cushion is what allows you to stay out of credit card debt. This is money that you'll live on if you lose your job, that you'll use to buy a new washing macine if the washing machine breaks, that you'll use to pay bills if you have health expenses not covered by insurance.

*If you can, get a fixed mortgage. If you've paid off all other debt, or all other debt except for low-interest-rate student loans, pay extra on your mortgage. If you have a 30-year mortgage, for example, you can pay it off in 15 years. There are calculators on the web that will show you how much you have to pay every month to do this. You'll save thousands of dollars in interest this way. First, however, you need to make sure that there are no penalties for early payment. Call your mortgage lender and ask.


Anonymous said...

Good advice. Easier said than done, but any effort will make the consequences less severe.

So many Americans are already at a place of no assets, no health insurance, and under or unemployed. I asked a financial advisor once, who gave very similar strategic advice as you, what people already in trouble could do before things got worse.

His response, not the least bit tongue in cheek, was quite surprising. I thought he'd run down a list of ways to negotiate with crditors, tricks to find affordable healthcare and ways to protect what little you might have. His advice....teach them how to plant a garden in a very small space and give them some goats.

Made me think for a while about where he may see us heading.

When we get them, I've decided to name our goats Homer and Marge.

-left rev

Anonymous said...

A break like a breath, necessary!
See you soon !

voyance par mail