Student Loan Debt Still Rising – Could it be the next crisis?

Pay it or die with it, you choose.

A report concerning student loans debt was released by the National Association of Consumer Bankruptcy Attorneys (NACBA) in early February 2012.  More than 80 percent of the attorneys had seen an increase in the number of potential clients with student loan debt. Almost 25 percent of the attorneys said the number of potential student loan clients increased 50 to 100 percent; 39 percent of attorneys reported increases of 25 to 50 percent.

Student debt is increasing

Student debt is rising due to increased cost of college education, reduction in financial aid, depressed economic conditions, reduced parents’ incomes, fewer part time jobs for students, and finding jobs after graduation have become more difficult.  Some parents are getting into debt to pay for college because they don’t have the money saved or are co-signing for these loans. read more »

Auto Loan Approvals Increased to Those with Lower Scores

Experian, one of the three credit reporting agencies, conducts an automotive credit analysis on a quarterly basis. The latest analysis was for third quarter 2011. Lenders are loosening their credit criteria and are lending to those with lower credit scores in the sub-prime and deep sub-prime categories.  Experian’s analysis is based upon their Plus Score, which score ranges from 330 to 830.  This score is developed by Experian and is not the FICO score.

Sub-prime scores range from 550 to 610 and deep sub-prime includes scores below 550. These two score categories are considered higher risk and consumers with these scores are charged much higher interest rates. Typically consumers in these categories have difficulty qualifying for loans. The next higher score category is non-prime with scores that range from 620 to 679 and prime is 680 and above. read more »

Did you walk away from your bank and join a credit union last year?

More time has gone by since Bank Transfer Day – November 5, 2011.  There were many estimates of the number that switched from big banks to credit unions and community banks.  Javelin Strategy and Research conducts consumer surveys on financial services products.   They pulled out information about Bank Transfer Day bank account closings from a December 2011 online survey of 5,878 consumers.

610,000 Switched in Q4 2011

According to Javelin Research, 610,000 moved their accounts from the big banks and switched to community banks or credit unions.  This represented 11 percent of the 5.6 million that moved their bank accounts during fourth quarter 2011.  Although, the number was only 11 percent, that still is a significant percentage. This was enough to make an impact on the banks to make a change and cancel the debit card fee.  Bank of America experienced an increase of 20 percent accounts closed in fourth quarter 2011 compared to fourth quarter 2010. read more »

Fannie Mae and Freddie Mac have made changes to their forbearance policies, for borrowers who are unemployed and can’t pay their home loans.  Fannie Mae’s policy was effective March 1, 2012 and Freddie Mac’s was effective February 1, 2012.

First what is mortgage forbearance?  The lender or mortgage servicing company will defer or reduce the monthly mortgage payments for a specific period of time, if the reason for the inability to pay is based upon job loss.  They will not have their home foreclosed on during that time.  After that time frame has passed, they will have to pay the former monthly payment, and also make up the difference that was on deferred.  The principal balance of the loan is not reduced. read more »

A “Chip-and-Pin” card is also known as Europay, MasterCard and Visa.  The card was named after the developers of the card, hence it is called EMV.  The card includes a microprocessor chip that encrypts transactions differently for each purchase.  This makes it difficult for thieves to duplicate. To make a purchase requires both your card and a PIN number.

MasterCard and Visa’s push

Both MasterCard and Visa are trying to encourage upgrades to accept the cards. MasterCard is trying to convince ATM owners to upgrade their machines by April 2013. Visa will require U.S. acquirer processors and sub-processor service providers to support merchant acceptance of chip transactions by April 1, 2013. read more »

Now that debit card swipe fees retailers pay to the debit card issuers have been reduced from $.44 to $.21 (plus.05  percent of the transaction), retailers also want to pay a lower interchange fee on Visa and MasterCard credit cards. They claim that the Visa and MasterCard have set prices that are unfair and would be lower in a competitive market. The average interchange fees are two percent for credit card transactions.  The retailers are trying to get them down to .5 percent.

Retailers Involved

Approximately five million retailers are suing Visa, MasterCard, and major banks.  The retailers include The National Association of Convenience Stores (NACS) and The National Restaurant Association. Ten larger retailers including Kroger and Walgreen have opted out of the class.  Some of the banks being sued include: Bank of America, Barclays, Capone, Chase, Citigroup, 5th Third Bancorp, HSBC, JP Morgan, PNC Bank, Sun Trust, US Bancorp and Wells Fargo.  The suit won’t go before the U.S. Eastern District court until September12, 2012. read more »

Javelin Strategy & Research conducted research to determine consumer attitudes toward payment options such as – cash, debit cards and credit cards. They surveyed more than 3,200 consumers in October 2011.  The title of the report was “Evolution in Consumer Payments Behavior: How the Durbin Amendment and the Economy Are Driving Payment Change”.

Debit card fees

The Durbin Amendment set the debit card swipe fees merchants are charged by the issuers from $.44 to $.21 for the large banks.  This reduced their revenue by half for this category and is now projected to be $12 billion annually.   Then several mega banks announced that they were going to charge debit card fees beginning in October 2011.  Because of the backlash from consumers and politicians, these fees were canceled.   Some consumers closed their bank accounts and switched to credit unions. read more »

Fannie Mae conducts a monthly survey on consumer attitudes called National Housing Survey; the latest was conducted in December 2011. It was a phone survey of 1,000 Americans to assess their attitudes toward owning and renting a home, mortgage rates, homeownership distress, the economy, household finances, and overall consumer confidence.  Attitudes on some issues have improved somewhat since November 2011.

There was a 38 percent increase in those who said the economy is on the right track, but that was only 22 percent of the responders, compared to 69 percent who felt we were on the wrong track. This is the first time, since February 2011, that more thought their personal financial situation would improve over the next 12 months. More said their income was higher than 12 months ago. They expected home prices to increase by 0.8% over the next 12 months, which is an increase of 0.2% from November 2011. read more »

…other than not pay your taxes today on your credit card!!

There are tools that can help you determine which bill to pay off and there are many different opinions from industry experts on which card you should pay off first.  Some consumers want to pay off the card with the lowest balance, so they can feel accomplishment in paying off the bill.  Others want to pay off the one with the highest interest rate and others the one with highest balance. I have addressed paying those with the highest interest rate and those with the highest balance.

Pay off those with highest interest rate first

The fastest way to pay off your debt is pay at least the minimums and put any extra toward the cards with the highest interest rates first. Take all of your credit cards, list them on an excel spread sheet, rank by interest rate and then attack the most expensive debt first. You don’t have to use a fancy tool developed by a company to do this. You still have to use the same information in your spread sheet such as the interest rate and balance, as you do for the fancy tool. Either way you have to provide this data, because you are the only one that has this data. When you pay off one card, take that payment and put it toward the next highest interest rate card along with the minimum payment and so on until everything’s paid off. read more »

Another outcome of the Dodd-Frank Wall Street Reform and Consumer Protection Act,  effective July 2011, was permitting merchants to set a minimum credit card purchase of up to $10.   It required merchants to treat all credit cards the same. In addition, the Federal Reserve was allowed to review and increase the minimum amount.

Prior to the law, Visa, MasterCard and Discover Card didn’t permit merchants to set transaction minimums. American Express allowed merchants to set minimums, as long as it applied to all credit cards.

Cost to merchants

The key reasons the merchants pushed this law was based upon the fees they pay for credit card transactions.  The fee runs from 1 to 3.5 percent of the transaction plus a per-transaction cost of 5 to 10 cents. read more »