Christmas is the most expensive holiday of the year and often means a substantial hit to consumer finances. The season is also a great time for lenders to peddle credit, particularly to those who have less than perfect credit histories. However, recent difficulties in the credit market have made it difficult for many mainstream creditors to limit their lending to those with bad credit. Many subprime lenders know this and will take the time to tempt you to borrow from them.

It is easy to fall into this trap, but can be extremely difficult to get out. Many credit cards provided by these subprime lenders charge annual interest rates in excess of 39.9% to 59.9% - compared to the 15% APR charged by the typical credit card company. These companies typically target consumers that have County Court Judgments (CCJs) along with those that are unemployed and retired and on limited incomes. It is important for consumers to realize that these companies should almost never be used.

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Several credit card companies have begun to automatically increase credit card holder interest rates when their customers’ credit scores drop, according to an investigation that will be the focus of a US Senate subcommittee hearing on Tuesday. According to the report, Bank of America and Discover Financial Services monitor credit reports and use “universal default” clauses in customer contracts to justify raising interest rates, even for customers with a good payment history.

Credit card companies contend that they have to “price risk” and this is best done through the use of credit reports – which are the closest thing they have to a risk measure. However, consumer activists say that customers should not face any “penalties” since they have not committed any mistakes yet – that is, they have no late payments. The arguments against such provisions gained traction after Citigroup and JP Morgan recently pulled their own programs doing the same thing amid controversy.

Is this excessive or simply a prudent business move? Well, that is a question that the US Senate will have to answer during their next subcommittee meeting.

It is frightening to think that around two million subprime mortgages, worth around $350 billion, are expected to reset to a higher interest rate over the next 18 months. Meanwhile, resets on near-prime loans are expected to continue to climb until at least 2010. So, how can consumers work to avoid a crushing level of defaults by home owners who find themselves overextended?

Arnold Schwarzenegger, governor of California, has one idea that many other states may adopt. The strategy is based on the premise that foreclosures are expensive for banks, with the average one eating up more than 20 to 25 percent of the mortgage balance. As a result, it may be worthwhile for lenders to modify loan terms to be more accommodating. While this may reduce cash flows, it will likely mean fewer defaults.

This sounds good in theory, but some preliminary data is troubling. Some analysts have noted that 35 to 40 percent of modified loans still experience a re-default over the next two years. Obviously, this is due to interest rates that only continue to rise. So basically, in order for this strategy to work, interest rates would have to decline over the period of the re-negotiated rates in order to make the house as affordable as it was when the original mortgage was taken.

There is also concern that many consumers may view the process as unfair. After all, only those in a dire situation will be permitted to re-negotiate their loans to a lower rate despite their existing contracts in place. So, why should the government bail out the people who made dumb mistakes and spent above their means in the first place? It’s a good point that is likely to draw substantial criticism.

In the end, this strategy is likely to draw some heat while many doubt that it will work. However, there are very few other options for homeowners that are increasingly likely to default once their rates are reset higher. This will only compound the problems that we have already seen and send the market into a further tailspin. So, all we can do now is wait and hope…

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There is a growing fear in the markets that the damage from the mortgage markets may spread to consumer credit. Recently, a Goldman Sachs analyst suggested that credit card losses could reach $99 billion if worry spreads to the consumer credit markets. The concern stems from rises in both the charge-off and delinquency rates, which measure the share of balances that are uncollectable or more than 30 days late. HSBC alone noted that it had taken a $1.4 billion charge in its American consumer-finance businesses, partially due to weakness among credit card borrowers.

It may be a little too early to panic, however, as delinquency rates are still almost a full percentage point below the historical average at 3.98%. Industry reports also cite solid repayment rates and continued confidence on Wall Street in credit card backed securities. In fact, some analysts predict that issuance volumes for these securities will be up around 25% in 2007 alone. It is also worth noting that the credit card industry is not likely to experience a subprime-like meltdown because they are able to adjust interest rates and alter credit limits much easier than mortgage lenders.

So, what does this mean for credit card companies and consumers? Well, it is unlikely that the credit card industry will see a downturn like the mortgage markets. However, there is a risk that a sustained downturn if lower housing prices and contractions in credit continue to make for a dimmer future. This would equate to higher rates and less lenient terms for credit card consumers.

“I’ll pay you back later” is an all too common phrase heard during our daily course of life. Whether it’s a friend who is short on cash or a family member who is starting a business, we all know that many times the people forget about the loan. So, how can you get your money back without ruining your relationship?

The first thing to do is set limits. Never lend money that you don’t have or any amount that will cause you to lose sleep at night. If you have credit card debt or other debt, you should focus on improving your own situation before helping others or you will only compound your own problems. Honesty is best and you can get out of these loans by simply telling them “Sorry, I wish I could help, but money is really tight right now for me too”.

The second thing to remember is to put big loans in writing. A loan greater than $100 may be worth writing a contract on paper for stating how much was borrowed, who owes what money, and when it needs to be paid back among other things. These contracts can be made legal through the use of a notary who can certify that both parties were present and agreed to the terms.

Interest may also be appropriate as the money could be making savings rate in a safe location. For example, a low 4% interest rate may be appropriate to encourage repayment. If they complain about such rates, it may be a good sign that you shouldn’t be loaning to them in the first place. In the end, it is important to just be careful when lending to friends and family as it can often become a touchy issue.

Some colleges have started programs to help students ease or eliminate student debt as pressure builds in Washington to help them afford the rising costs of school. Several colleges have eliminated loans from all financial-aid packages beginning next school year and replace them with grants and student employment contracts.

Other schools have provisions in place dictating who is able to obtain loans and who is eligible for other benefits. For example, Emory University is eliminating loans for undergraduate students whose families earn less than $50,000 per year, while capping total loan volume at $15,000 over four years for families with income up to $100,000.

Typically, schools will assess family income and assets to come up with an “expected family contribution”. This is subtracted from the expected contribution from the total cost of attendance – tuition, fees, room and board and other expenses – to come up with how much “need” there is for a given student. A financial aid package is then devised to meet this need, which is typically a combination of loans and grants. The new provisions will replace these loans with an all-grant package.

These initiatives are being financed through endowments, but many colleges plan on cutting down on non-academic spending in order to raise new funds. The move also comes after Congress has begun encouraging universities to start dipping into their endowments instead of simply reinvesting the money in global markets. Combined, many are hoping that these provisions will help lessen the burden on students that are struggling to get under a cloud of debt.

The best way to avoid excessive debt this holiday season may be to shop with a plan, according to many experts. Many shoppers find themselves financially unprepared for the extra expenses and turn to home equity loans or credit cards. As a result, many people can end up overspending during the holidays trying to get the perfect present for friends and family. Credit cards may offer a free 30-day loan, but shoppers that overextend themselves may find themselves in more financial hurt than if they used a checking account instead.

The best solution to curbing your holiday spending may be to establish a budget. Make a list of everyone you wish to buy presents for and figure out exactly what you want to get them. Then compute the total price and compare it to your cash on hand and make sure you can afford it. Finally, go to the stores with your list and purchase only those things on the list. Many people end up buying much more than they plan when going to stores, so it is important to stick to the list. The end result is a very manageable holiday shopping season.

Debt is a very real problem for millions of young Americans as they borrow to get through school, spend money on healthcare, and buy on credit to keep up with the latest trends. This new generation is quickly shaping up to be a generation of debtors. The most recent statistics from the College Board show undergratudates that attend a for-profit school use more than $24,000 in student loans while the number stands at $10,000 at public universities. These numbers represent a 35% climb over five years ago, which is lightyears ahead of the inflation numbers that can justify it!

Meanwhile, federal student aid has dropped or remained stagnant over the past few years. Grants have converted to loans as America forces more and more of its young generation into debt. Many students find it hard to pay back such large loans later in life when interest starts piling up and the job market shrinks. The cost of living in many cities has only gone up too as renters are even accepting the plastic to pay bills! Clearly this is a disturbing trend that will need to be addressed on both the government and individual levels.

Everyone can appreciate a little financial relief during the holiday season, whether it be a special discount, cash rebate, or free gift. Many of these perks are made available during this season to shoppers who sign up for credit cards and special financing offers. Savvy consumers can take advantage of these deals in order to obtain some perks, postpone some bills, and collect some free gifts. Here are a few of the popular promotions available:

• Retailer Discounts – Many retailers are now offering discounts for shoppers using their store credit cards. Consumers should look into these cards if they are available free of charge and offer significant discounts. Consider obtaining one card (such as an Amazon.com card) and doing all of your holiday shopping in one place to maximize your savings.
  
  
• Deferred Payments – The idea of buying now and paying later may seem great, but it is important for consumers to read the fine print. Often times, these deals let you defer payments interest-free for months (or even years!) but if you miss one payment, you will owe past interest for all those months! So, if you take these deals, be sure to make timely payments in the future!
  
  
• Rewards Point/Perks – Many credit cards offer rewards points or cash back for everything you spend. Consumers can use one credit card with rewards for all of their shopping in order to maximize cash back, rewards points, or free airline miles.
  

Combined, these are some ways in which you can leverage your holiday shopping to start paying some dividends!

Credit card debt is at $920 billion and climbing as more people are using the handy piece of plastic to cover everything from $3 a gallon gas to holiday shopping. Many consumers will eventually pay back what they spend; however, there is growing concern that some cash-strapped borrowers may take on more than they can afford to pay back due to the lack of home equity cashflow.

Credit card delinquency rates remain near their all-time lows, but are inching higher according to banking industry reports. Statistics are beginning to surface showing an increase in cash advances and smaller balance portions being paid off each month. Many believe that this may eventually force banks to raise their credit card interest rates to compensate for increased losses, which will put the whole cycle into motion yet again.

Compared to mortgage lending, however, credit card losses are not all that significant. This is partially because lenders who give people more credit on the promise to pay back already apply more rigid standards to borrowers with questionable records. This is in stark contrast to the subprime lenders who had little to no criteria for their borrowers – believing that homes would be sufficient collateral.

In the end, consumers may be facing increased pressures in the future amid higher gas prices, a holiday season and tightening credit standards. It is more important now than ever to get out of debt and keep a spending budget in order to make sure you can weather the storm.

Saving is the most important step on the way to financial well-being, both in the short-term and long-term. Short-term savings can provide you with an emergency fund that you can tap in to in the event of an unforeseen, large or urgent expense. Meanwhile, long-term savings can help you accomplish goals like purchasing a house, going to college or retiring from working life.

Ideally, everyone should have more money coming in than going out every month. If you are in debt, you should immediately begin paying off your debts (especially high interest debts) before committing any money to investment or savings. Once you are free of debts, begin to build a short-term cushion in case of emergency. And finally, you can begin putting away money for long-term goals like retirement.

How much emergency savings should you keep in the bank? Well, most experts recommend keeping 3 to 6 months worth of living expenses, but this number could vary based on the number of dependents in your household and the type of income you are earning. Once you are free and clear with this amount, you can invest additional savings in stocks, bonds, or riskier places.

As a final note, it is important to remember that you should not rely on credit cards or investments to become your short-term emergency savings. Credit cards can easily put you in substantial debt while selling investments before they are due can levy significant fines.