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I hope everybody’s been paying attention to the current state of the economy. If you listen to Wall Street or Fox News you’ll think that we’re headed into the great depression 2007. I’m no expert on the specifics of macro economic theory as it applies to the western hemisphere, but I’ve had enough classes to know that things are about to change, specifically when it comes to borrowing money and your cost to borrow money.
The fear of default has gripped the lending community like a dogfighter in Virginia (sorry Mike). It’s almost to the point where getting a sub-prime mortgage is like trying to get a fair trial in Jena, LA, and if you know anything about that story then you know that there are no fair trials in Jena, LA.
I know you’re thinking, well, what does that have to do with me. If your finances are in order and you don’t have a need to borrow for at least the next 12-18 months, then it has nothing to do with you. But, for those of you out there who don’t have sparkling credit ratings or higher than average incomes this does pertain to you. If your car is on its last leg, or your home needs new plumbing you may want to consider addressing those needs NOW. While uncertain economies aren’t ideal for borrowing, the uncertainty that exists in this marketplace is quickly constricting the coffers of banks and lending institutions all across the country. This trend is expected to continue into for the next 12-18 months.
The reason you may want to consider addressing your borrowing needs now is because as the economy tightens two major things happen. First, lenders become hesitant to lend money because they fear default. Since they can’t just stop lending altogether they make it more difficult to borrow. Credit underwriting standards become stricter, interest rates generally rise and the amounts extended for loan requests are typically reduced (Loan-to-Value). Second, the terms of credit that you currently have in place can change drastically. The rates on your credit cards can increase, your credit spending limits can be reduced and your Adjustable Rate Mortgages(ARM) can (and will) adjust upward.
Four things you can do now to help you weather the storm of borrowing uncertainty:
- Make sure you pad your emergency fund: This will help you with unexpected expenses and hopefully limit your short term borrowing needs.
- Pay those bills on time: You don’t want to fall victim to Universal Default, this will increase the rates on all of your credit cards, can you say bend over?
- Make a budget and stick to it: If you haven’t noticed, the price of everything from milk to chicken has increased which means your money is worth less than before.
- If you are looking to borrow money make sure it is for essential items. Now is not the time to use credit to pay for luxury goods or vacations.
Each one teach one, if you know someone who can benefit from this information please pass it on
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Credit & Borrowing 
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