Consumer Buying Power: Trying to stay afloat
Managing your credit may be your best option.
With late payments, bankruptcies and foreclosures on the rise, and savings rates on the decline, many Americans may be rethinking their undisciplined spending habits of the past.
Assessing the bigger picture
For many consumers who are already in deep debt, the debt scenario on a national level isn’t much better.
Calculated at more than $225 billion, the most recent U.S. trade deficit means that we’re deeper in the red than 20 years ago and shrinking fast. Recently, Congress raised the ceiling on the national debt to nearly $9 trillion, up 58% since 2000. Additionally, the House and Senate recently voted for major spending initiatives for the war in Iraq, hurricane relief and education. At some point, it will be time to “Pay the Piper,” which might mean higher taxes.
On top of all this, a cooling housing market may force many debt-ridden consumers to seek alternative ways to deal with their short-term financial situation, including foreclosures and even bankruptcy.
Experts predict more foreclosures
Experts agree that foreclosures will rise over the next few years. While each foreclosure is traumatic for the family that loses a house, the coming wave of defaults is not expected to impact the overall picture that much.
The borrowers who are in the most danger have two major challenges. First, they may end up with more debt than they expected – owing more than their house is worth. Second, some have interest-only, adjustable-rate mortgages (ARMs), many with low "teaser rates." Eventually, after anywhere from one month to five years, the ARM enters its rate-adjustment period and the loan is reset with a higher rate. To avoid being caught off guard, it’s a good idea to review all the information on any loan documents and to be aware of any potential risks. Remember, late payments can have a negative effect on a credit score, potentially reducing a consumer’s chances of obtaining more competitive loan rates.
Now Might be a Good Time to Take Control of Your Credit Score
Changes in debt levels and the housing market may be cause for concern for some individuals. Consumers concerned about their situation might benefit from keeping a closer eye on their credit. A credit score can change whenever new information is reported by creditors. It is important for consumers to know their complete credit picture and treat it responsibly. This will help consumers to be aware of potential risks and keep their purchasing power under their control.
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