Posted on 12/13/2008 9:41:29 AM PST by RKBA Democrat
If you haven't yet had your credit limit slashed on one of your credit cards, it's highly likely you will -- if Meredith Whitney is right, that is. Whitney, an analyst and managing director at Oppenheimer & Co. who predicted the current financial-services industry meltdown, now says credit-card issuers will eliminate more than $2 trillion in available credit over the next 18 months.
Already, lenders have cut back on available credit due to their heightened aversion to risk and difficulty in funding loans. Before the financial crisis, consumer loans could be sold on a secondary market and the proceeds could help to spur more lending, but that market has largely dried up.
(Excerpt) Read more at marketwatch.com ...
I wouldn't mind using my AEx card or the others but I as so afraid of having so many bills coming in and missing one or being late on another....that does affect your credit ....
Thank you for those great suggestions. I will see what they can do for me, but glad to see that in a year I should be clear again...unless I mess up again. lol.
I have been getting more credit card applications and being offered them in the store than I can count.
I have 3 major credit cards and 1 store credit card and though I have charged more lately (to me charging $100.00 is a lot of money) I pay off my charges every month that I use them. And I may not use them for months and months.
Up until 18 months ago I was quite in debt and finally paid off everything. Unless something major breaks in my home or my car (please God - NO!) I won’t charge more than I can pay off in one month. I lived with the stress of debt for a lot of years and REFUSE to go back to being that way!
“Now let’s say your house is paid off and it’s worth $300,000. How much money do you have? None, unless you can take it out. Maybe when you need it, the bank won’t let you have it because your injured or unemployed.”
I know what you are saying, nufsed, here and in your other excellent points. As I said, mine is a life goal. To sum it up, the idea is to have enough liquid assets to not have to borrow or rely on your home’s equity. Again, I might not ever reach my goal, but I am working on it.
“I suggested you borrow money for a net of 4% and make 7-8% on the money. The tax deduction merely let’s you borrow for 4%. Making more than you pay is arbitrage. Would be interested in your argument against that.”
My argument: there is no such thing as a free lunch. Your strategy appears to ignore risk. More risky investments rightfully have higher returns. What you’re suggesting is taking a mortgage against real estate, which has been shown to be relatively risky of late, and if I understand correctly, invest it in the stock market or elsewhere. All of which are relatively risky as compared to the loan issued.
This really isn’t much different from leverage in the macro sense.
Let’s simplify it. Let’s say you take a $100,000 mortgage against your paid off home and use it to purchase growth stocks. Growth stocks can offer returns much better than a savings account. That’s because they’re more risky. Now let’s say you bought into the market 18 months ago. Chances are, you’ve since lost about 1/3 to 1/2 your investment. It’s also possible that you would buy today and were to gain a significant amount in the future. But we don’t know that’s going to happen. And if you have a reliable crystal ball, I’d sure like to borrow it.
The only time that in my view an investment as you’re proposing would make sense is if you were able to borrow at a rate significantly lower than what you could lend it out for using a similar risk profile. So for example you borrow at 4% and can put it in a CD at 8%. That is a very unlikely scenario, although it has happened rarely in the past. E.g. folks who borrowed against their homes in the early 1970’s were able to put money into CD’s at a higher rate during the late 70’s. While it’s possible for that to happen again, I don’t think it’s wise to bet on it.
There is also a cultural dimension to all this. I do not buy on to the idea that your personal home is an investment in the sense that it has been touted in recent years. It’s shelter, not a piggy bank.
Naturally it’s your money, and you might send me a note a few years from now telling me what a great investment it turned out to be. I hope that’s the way it turns out for you.
So point one, a mortgage is not risky if you can make the payment. You made some comments about the investment risks without knowing what I proposed. I propose Indexed Universal Life insurance with a company that is 167 years old and has outrun the stock market the last 25 years. A to AAA rated insurance companies have not defaulted on a life insurance policy in the history of the US. The company has 1.59 to 1 asset over policy debt ratio. Also the state has a guarantee fund and a reinsurance program.
It's rather duplicitous to argue against my proposal when I previously indicated that equity is not safe, liquid, nor does it and have a rate of return. So far, I'll have it my way, thank you.
It's clear from your last three paragraphs you are unfamiliar with the investment I was referring to.
In my experience as a financial planner here's what I run into. People outlive their retirement money. The average 401k is gone after 13 years.
We are living longer. Most people do tax deferred retirement and pay off their homes believing they will need less money when they retire. So what happens?
The cost of living keeps increasing. If you live 36 years in retirement, the cost of living will probably double twice.
If you pay off your house, you have lost your largest tax deduction, at a time when you are paying your roll out tax on your 401k.
The concepts I'm advocating here are to accelerate your retirement fund through equity management, get out of a tax deferred retirement (pay tax on the seed rather than the harvest), and become your own bank.
One last point on tax deferment. If you pay 500 a month into a 401k over 35 years at 7.5% growth you'll have a million dollar fund, after deferring 70,000 in taxes over 35 years.
However, if you live 35 years in retirement, you will pay nearly $800,000 in taxes during the roll out and the rest of the 35 year period.
Best wishes!
Actually, it didn’t, and I was grateful for that. Strangly, the report says “closed at customer request,” and I most certainly did not request it.
Thank you for your wishes, and you sound like an excellent and successful financial planner. And a very uncommon one, if I may say so! And, I cannot argue with getting out of, or at least not relying solely on, tax-deferred retirement. Thanks for the clarifications!
"Different isn't always better; but better is always different."
BTW, as I mentioned earlier your points are excellent and I am not advocating against them. Nor are my wife and I “working feverishly” to pay off our mortgage. Just to clarify, my life goal is to simply have enough on-hand, ready assets to not have to (or feel compelled to) finance.
I might not ever reach my goal, and in fact my dad thinks it is silly, for the same reasons mentioned elsewhere in this thread. But what can I tell you? Who knows, maybe one day if I ever DO reach my goal, I might find myself saying “you know what, nufsed was right” haha!! :-)
Thanks for the explanations again. You by chance don’t live in Northern Virginia do you?
Dispute it. Anything paid can be removed with that explanation (it was paid). Usually happens by the next month.
Gosh, I seem to have run one at a nice profit for 20 years. And I do give people extra time to pay when confronted with misfortunes beyond their control. Just blind, dumb luck I guess. And the comment “In mandates a perfect vision of the future and absolute certainty of the vision” is perplexing since no one has such attributes.
A lot of people payed down debt last month,
http://money.cnn.com/2008/10/28/pf/money_habits/index.htm:
however this is an unfortunate time of year to contract someone’s credit without warning.
Your comment did not address the issue at hand.
Forknowledge of closing for good is different from family leave
“So far, I’ll have it my way, thank you.”
I wish you the best of luck.
Thanx. Good luck!
Won’t drag this out any longer, but I was talking about forewarning of increases in credit card rates or lowering of credit lines.
You are correct; you’d be suicidal to announce your business was going down and expect it to have any positive impact on the situation unless a larger heaping of economic pain is ones cup of tea.
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