Many people make the mistake of only making minimum payments on their credit card debt. The problem is that you will never end up paying off your debt because you'll simply be paying back the interest only part while leaving the principal untouched. The key to getting out of debt is paying down as much of the principal as possible so that you can stop making payments sooner. Unfortunately, many people now are doing just the opposite and getting themselves into more trouble.

From LATimes:
Easy credit is great. Except when it's too easy. Millions of people are now in danger of losing their homes as a result of the meltdown in the sub-prime mortgage market. But millions more face the prospect of financial ruin because of an even more ubiquitous problem: the danger of making only minimum payments on monthly credit card bills. "You're not even denting your debt at all," said Schimeck, a Detroit resident. "All you're doing is keeping your credit card company happy so you can keep your account."

The global credit crunch that has already affected many people as lending standards tighten could be set to get worse if the economic downturn in the West continues, according to the IMF. Writedowns are continuing to affect many institutions and there is fear that the may continue to cause problems in the future. Any serious increases in the credit crunch could pour into the consumer credit and other sectors.

From Forbes:

The global credit crunch, already felt by financial institutions could continue to worsen if the economic downturn in the United States or elsewhere deepens, the IMF reported today. 'Evidence from lending surveys already shows some tightening of lending standards,' the IMF said in an update to its Global Financial Stability Report. It added that this crisis is being felt not only in the US, but also in Europe. 'While other regions' financial institutions appear to have less exposure, subprime related writedowns are still possible,' the report said.

American Express announced an increase in its loss reserves for bad consumer debt again this quarter as consumers are expected to continue defaulting on credit cards after troubles in the mortgage markets, higher energy costs, and higher food bills. Meanwhile, many are expecting the housing market to continue stalling until 2010 when the resets start to slow.

From BBC News:

American Express has posted a 10% drop in profits for the three months to December after it set aside extra capital to cover bad credit card loans. The US credit card firm said net income was $831m (£418.7m), down from $922m a year earlier. It attributed the decline to an after tax charge of $274m to boost revenue for credit card-related losses. This reflected huge defaults by American Express customers suffering from higher mortgage repayments and higher energy and food bills, analysts said.

Those with credit problems may find now as the best time to approach credit card companies in order to get their rates lowered, fees waived, and other assitance offered. Credit card companies are desperate to keep their customers these days as they can ill afford to lose them as an increasing number of clients are defaulting on their credit cards or declaring bankruptcy. So, it may be a good time to give you credit card company a call if you are experiencing problems!

From TheStreet.com:

"Before the subprime lending crisis, the banks didn't have to bow and scrape for your business, but now they desperately need you," says Robert D. Manning, author of the book Credit Card Nation. "If you have a substantial debt load, they don't want to lose you" because someone with a big debt load is often profitable for the banks.

In other words, when you're facing an impossible credit card payment, you might have more bargaining power now on how to avoid missing it. In any event, you have reason to fight. Scott Bilker, the founder of DebtSmart.com, says your lender might raise your rate to as much as 32% if you miss a payment. If you were regularly paying off $140 per month on $5,000 of credit card debt at an original 10% rate that got jacked up to 32%, you could end up owing an extra $10,220 as a result.

The numbers speak for themselves - the housing market experienced one of the largest crashes in its history last year and things do not look any better for this year. The reason for this is simple economics: An increasing number of mortgages are experiencing an interest rate reset to a higher level due to an ARM with a teaser rate; higher interest rates will lead to more expensive mortgages and late payments; more late payments will lead to more foreclosures; more foreclosures will lead to more houses on the market (increase in supply); and more houses on the market means lower valuations for the housing market; and finally, a declining market means buyers are afraid to put in money and buy a house leading to even lower prices (lower demand). It's a vicious cycle that may take awhile to end.

From New York Times:

Sales of new homes fell last year by 26 percent, the steepest drop since records began in 1963, the Commerce Department said on Monday.

Last week, the National Association of Realtors reported that sales of previously owned single-family homes, a large portion of the overall housing market, suffered their biggest annual drop in 25 years.

Prices have also fallen sharply. In December, the median price of a new home fell to $219,200, down 10 percent from December 2006.

For the year, the median price of new homes rose just 0.2 percent, to $246,900. But the median price of a previously owned single-family home fell for the first time in at least four decades, the National Association of Realtors said.

Housing prices have hit historic lows and many are predicting further falls into 2010 before things start turning around. So, is now the time to buy up real estate while it's cheap, or should you wait until things settle down a bit more? Well, a lot depends on the person. If you have the financing available to purchase some investment properties, then it may not be a bad time to start getting into the market. It is most definitely a buyer's market out there right now as people continue to struggle selling homes. Those in a position to make payments and have a downpayment ready may want to take the leap while the market is at a low.

From CNN Money:
Is it a good idea to buy real estate during a recession? - jordanfan954

It's not about the economy's health. It's your personal wealth. If you're in a position to make the payments and you have a down payment, start shopping. There are bargains to be had. Housing prices have fallen dramatically in some places. And many economists say that prices will fall even more. Merrill Lynch, for example, says this year home prices will fall 15 percent and 10 percent in 2009. So, it is a good time to start the process of home buying. 30 year fixed rates are at 2 and a half year lows and it certainly is a buyers market. Now is the time to get the best credit score that you can - investigate markets you're interested in and start squirreling away your down payment.

The Federal Reserve has just cut rates in an emergency meeting and more cuts are expected down the road as they tried to stave off a recession. So, is now the right time for you to refinance your mortgage? Well, lending standards have tightened substantially since the last time you probably got your mortgage. It is more difficult for those with poor credit to get an attractive refi offer. Today, you'll need 20 percent equity in your home and a credit score of 760 to even be considered! In short, those who have adjustable rate mortgages facing a higher reset may want to consider refinancing into a fixed low interest rate loan now if they have good credit - the time is right!

From CNN Money:
With the recent Federal interest rate cuts, is this a good time to refinance my home loan? What things should I take into consideration prior to refinancing i.e. credit score? - Ricardo, Florida

The bottom line is: if you have good credit, you'll be a winner. Falling mortgage rates are great for homeowners looking to refinance. This is especially true if you face an adjustable rate mortgage reset. But lenders are getting stricter. Today you'll need 20 percent equity in your home and a credit score of about 760 depending on the loan you get, to even be considered for a refinance. One mortgage broker we talked to said that in the past 8 out of 10 people who walked through the door were able to refi. Today, that number is more like 3 out of 10. So, if you don't have great credit, you want to focus on paying off high-interest debt, mailing in your payments on time and don't apply for any other credit in the meantime. Keep in mind, refinancing isn't free. It can cost 1-2 percent of the value of the loan.

Generous lending standards have been to blame for much of the problems in today's markets. Borrowers took on more money than they could afford to pay back while lenders were eager to issue more money in order to boost their own profits. And since they securitized these loans, they didn't care how likely it was that loans were paid back. Now, we are seeing the reprecussions from all of these poor lending practices. Credit cards have been one of the largest problems with the average person between 18 and 24 carrying $6,000 in debt - that can be crippling for anyone.

From PRLog:
With present economic conditions limiting American salaries and overall debt at record highs, Gen Yers are facing even bigger budget deficits. “The buy now, pay later lifestyle that so many baby boomers have become accustomed to is slowly rubbing off on their children,” says Jessie Conners, former Apprentice and author of Nightmare Nation: Redefining the Pursuit of the American Dream. Since Gen Yers spend over $175.1 billion dollars per year, it’s no wonder that retailers and credit card companies are targeting them much more than they did in the past. “A recent survey by the NSW Office of Fair Trading found that people between the ages of eighteen and twenty-four have an average debt of over $3,000,” says Ms. Conners. “And for those who have credit cards, their debt is over $6,000.”

Many people are aware that the housing market isn't doing so well, but few realize that this was the first time that prices actually dropped since reliable records began in 1968. So, are the housing and stock market busts just a temporary correction or a long-term problem? Well, we have already seen a historic decline and many experts believe that there needs to be much more of a correction before supply fits with demand in a market with very tough consumer credit.

From The New York Times:
It was a notable year for the housing industry, and not in a good way. In 2007, the median price of an American single-family home fell for the first time in at least four decades, according to the National Association of Realtors, a trade group. The median price declined 1.8 percent to $217,800, the first annual decline since reliable records began in 1968. “It’s the first price decline in many, many years and possibly going back to the Great Depression,” said the group’s chief economist, Lawrence Yun.

The stock market has declined substantially, but there has never been a better time to invest. Many people tend to buy when the stock market is red hot and sell when blood is on the streets, which goes against the "buy low, sell high" mentality that every great investor should embrace. The news has portrayed this as the worst meltdown in the stock market and economy ever, but in reality this sort of thing happens every decade or so. Long-term Capital Management nearly caused the collapse of the stock market in the 90s, for example. The key is just riding out the bumps and focusing on the long-term - whether it be in US stock markets or abroad.

From CNN Money:
The market is now down about 10 percent for the year and more than 15 percent from its high in October of last year. Sensationalistic headlines read something like "worst start ever for the stock market," and "as January goes, so goes the year." Such anxiety-inducing hype makes it virtually impossible for us to ignore the doom and gloom and just stay the course, but that's exactly what you should do.

Those looking to get in on the benefits of a Roth IRA still have time to get one for 2007 as long as they act before the April 15th tax deadline. Setting up a Roth IRA before this deadline can also enable you to contribute the full amount for 2008 instead of having to wait until later. This is especially a great move for those just getting started as a little bit now can definitely add up in the future.

From CNN Money:
... You can still stash up to $4,000 ($5,000 if you're 50 or older) in an IRA and have the contribution count toward the 2007 tax year, as long as you do so by the April 15th tax filing deadline. Just be sure that you make it clear to the brokerage firm, mutual fund company or bank you're dealing with that the contribution is for the 2007 tax year. As long as you do that, you'll retain the option of also making a contribution for this tax year, which, by the way, can be even larger, since the ceiling for IRA contributions for the 2008 tax year is $5,000, plus an extra $1,000 catch-up contribution for anyone 50 or older.

The Fed's actions today were widely expected and should have at least some postive effects for consumers, despite being unlikely to stave off a U.S. recession. Consumers will find lower mortgage rates, car loans, and credit card interest rates; however, savings accounts will earn much less as the move is designed to encourage consumers to spend or invest their savings. The emergency rate cut comes after a massive drop in the world stock markets ahead of a widely expected U.S. recession. Consumers may also find themselves with more money with an anticipated tax refund...

From US News:
Consumers aren't directly affected by today's Federal Reserve cuts in short-term interest rates, but they could be soon, as banks respond to the opportunity to borrow money more cheaply.

Mortgages: Consumers with good credit and money for a down payment are likely to find lower mortgage rates. "It will be cheaper to borrow money if you can get the loans at all," says David Wyss, chief economist at Standard & Poor's, noting that banks have grown more careful about lending money to risky consumers. "If you have bad credit, or if you're trying to buy with nothing down, as many have been doing over the last few years, it's a lot harder," he adds.

Car loans: Car loans also tend to respond quickly to changes in the prime rate, says Wyss, so those in the market for a car could find it cheaper to borrow money.

Credit card debt: Many cards come with fixed interest rates, which are unlikely to be affected by the Fed's decision, and even those with variable rates are unlikely to see changes anytime soon. "Credit card rates move very sluggishly," Wyss says.Savings: Interest rates on savings accounts, treasury bills, and municipal bonds tend to move together, so those who are storing money in savings accounts, certificates of deposit, or money market funds will most likely see their money earn less. "That is part of the Fed's planning. They want people spending (or investing), not saving," Levenson says. "That's what low interest rates do."

Savings: Interest rates on savings accounts, treasury bills, and municipal bonds tend to move together, so those who are storing money in savings accounts, certificates of deposit, or money market funds will most likely see their money earn less. "That is part of the Fed's planning. They want people spending (or investing), not saving," Levenson says. "That's what low interest rates do."

Equity markets around the world took a huge hit yesteday while the U.S. stock market enjoyed a holiday. Markets in Europe, Asia and even Latin America experienced massive declines as fears of a U.S. recession gained even more traction. The Fed agreed to cut rates once again, but many believe that it may no longer be enough to stave off what could become one of the toughest recessions in recent times. The U.S. stock market, which opened today, found itself able to hold off on the massive declines predicted by the futures market on Monday, but losses still came in at over 100 points. It appears like a recession is more likely now than ever before...

From SperoForum.com:
On Monday, fears of a US recession spilled over into Asian markets sending stocks tumbling. Indexes were hammered across the board in what turned out to be the worst day of trading since 2001. In India, the Bombay Sensitive Index plunged 1408 points, to 17,605. In China, the Shanghai Composite dropped 266 points (or 5.5%) to 23,818, while in Japan, the Nikkei fell 535 points, to 13,325 points. The bloodletting stretched across the continent and into Europe where shares nosedived by more than 4% by mid-morning “putting them on track for their biggest one-day fall in more than four and a half years.”

The President's new economic stimulus package is something that has to be approved for the simple reason that nobody wants to oppose it. Would you vote for the guy who decided against giving you free money? The currently planned $800 cash giveaway would provided citizens with money, but it's not all that likely that they will go and spend it at the mall and stimulate the economy. Many American's are cash poor these days and would likely put the money towards holding off creditors for another day. All that does it keep them alive for a few more weeks... What America really needs is economic change that would instill confidence in our economy and prevent any future busts like the one we've seen recently and so often in the past.

From AxisOfLogic:
The new word of the week is "economic stimulus package." Everyone is for it.

The President wants it if only because he knows a worsening economic crisis will leave his Administration in deep doo-doo, the way it did his dads' back in '92. Ben Bernanke, chairman of the Federal Reserve, is all for it if only because all of his rate cuts and "injections" of money into the financial system have not turned the US economy around.

He told Congress Thursday: "put money into the hands of households and firms that would spend it in the near term." This is likely to take the form of tax rebates and direct assistance.

And all the candidates-well most of them---want it too. Or at least they want something upbeat that will stimulate voters. John McCain lost Michigan, it is said, because he was too negative. Mitt Romney won because he promised to wave a magic wand, repeal Globalization and make Detroit what it one was.

Dream on.

Do you need more time to deal with your mortgage problems? Try filing for Chapter 13 bankruptcy and you could buy yourself a few more months - at least that's the strategy that people are now using in Las Vegas. Bankruptcies have hit new highs, particularly in Nevada, as the housing market has crashed leaving many out in the cold. Those seeking bankruptcy protection for their housing woes may also benefit from future laws aimed at empowering bankruptcy attornies with the ability to reduce the amount owed on mortgages - similar powers to what they can now do with unsecured debt...

From The New York Times:
John Rao, a bankruptcy specialist and lawyer with the National Consumer Law Center in Boston, said he saw a spike six months ago in Chapter 13 filings because of consumers’ mortgage problems.

Professor Lawless, a bankruptcy specialist, also saw a connection between foreclosures and Chapter 13 filings. “The new law has contributed to a higher percentage of Chapter 13s, but the mortgage crisis undoubtedly plays a role,” he said. “Distressed homeowners traditionally file Chapter 13 to save their homes.”

In Las Vegas, Judge Bruce A. Markell of United States Bankruptcy Court has seen a larger percentage of Chapter 13s lately. But an increasing number are “placeholder” filings by consumers who have no possibility of affording their mortgages’ resetting interest rates, he said.

Unless a creditor is very diligent, a Chapter 13 filing stays a foreclosure for two or three months, Judge Markell explained: “The placeholder filing buys you time to time to maneuver, to find another location.”