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The Holiday Spending Hangover- and It's Effects on Credit Scores - Paul Oster #5986 · Financial Survival Network

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Unfortunately, consumers did not get the message going into the holiday season, and
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they just simply they spent double what most economists were forecasting, double what was
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forecasted, and most of it was put on credit cards. So now you
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have a double whammy because as those credit card balances take up, our credit
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scores come down. You're listening to Carrie Let'sa's Financial Survival Network where you get
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You need the Financial Survival Network now more than ever. Go to Financial Survivalnetwork
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than ever, and welcome you are listening to and watching the Financial Survival Network.
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Hey, the name financial survival Network, you know, implies a lot
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of things, but specifically when it comes to you your personal credit, your
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credit card, debt, mortgages, auto loans, all of that good stuff
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that's it doesn't get any more basic than that. And right now you might
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be suffering from the holiday deaf hangover. I know a lot of you out
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there are, judging from the numbers of consumer debt keeps going up and up,
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credit card deaf well, let's talk about that. Our good friend Paul
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Auster is with us now, and Paul, you got some thoughts about that.
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So the holiday debt hangover, it comes as reliably as Christmas and New
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Year's and Boxing Day and all of that. What's your thoughts here. Unfortunately,
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consumers did not get the message going into the holiday season, and they
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just simply they spent double what most economists were forecasting, double what was forecasted,
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and most of it was put on credit cards. So now you have
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a double whammy because as those credit card balances take up, our credit scores
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come down. Once you cross over thirty percent, the ratio between your credit
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card balances to your credit limits, it's called your utilization ratio. Once you
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go above thirty percent, your scores come down very very quickly, and you
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could be talking easily fifty eighty one hundred point decline depending upon how far you
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really go here. That in turn is going to cost you more for every
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other financial transaction. So look, twenty twenty four should be the year that
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consumers focus on getting out of credit card debt. Fortunately, there's always a
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plan, it's just a matter of the consumer taking the hardest step, which
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is the first step swallowing their pride, raising their hand and saying, look,
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I might be in a little bit of trouble here. I've overspent maybe
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a couple of years in a row. I saw one survey it's close to
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thirty percent of the people that they spoke to hadn't paid off last year's credit
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card debt that they amassed during the holidays. So again, things are not
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looking good for the average consumer. We've already started to see the precursors do
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a down turn in the economy. Auto delinquencies are on the rise, three
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foreclosures again, credit card debt is creeping up. Millions of barers didn't have
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it made their student own payments that we're supposed to have started back in October.
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So all of these things put together really for me, again, I
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hate to be the doom sayer, but it looks like the perfect storm for
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a severe you know, awakening for the average consumer. If I remember correctly,
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they said they weren't going to start reporting delinquencies on those student loans till
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January or February, if I have that correct to the credit Yeah, but
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here we are right, I mean, all of this stuff happens in the
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blink of an eye. So a one times thirty day late payment for a
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barer, especially if they're a younger barwer. Again, fifty to one hundred
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points in the blending of an eye. One misspayment, one thirty day late.
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If we if you can't make the next payment, that's sixty days,
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ninety days after ninety days. Typically, if a consumer can't make the payment
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for one hundred and twenty days, it goes into collections. And now you're
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talking about severely damaging your credit. So look, you and I've spoken about
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it, you know, for years. Unfortunately, the hardest thing to do
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is get consumers to change their behavior if they continue to do the same exact
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thing that they've always done. We're in an environment today unlike no other.
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We've never seen this before. So the interest every time the FED raised the
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interest rates in twenty twenty three, our credit card interest rates went on.
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So if you're just making those same minimum payments, you've added years at one
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hundreds or thousands of dollars in interest payments because the interest rates that much higher.
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So look, if you got to borrow from your four oh one K,
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borrow from your family, take out a personal alone if you can get
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approved for it. Sometimes they're half of what you're paying in the credit card
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interest rate if you own your own home. Again, Even in today's economy
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and environment, mortgage interest rates are higher than they've been in over a decade,
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but eight percent seven percent is still way better than twenty seven to twenty
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nine percent, which a lot of consumers are paying on their credit cards.
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So if you have equity to tap into, tap into it. Look at
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zero percent balance transfers, Well, you can only do to that if you
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have a mathematical plan that you can pay off the new balance on that balance
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transfer card. Some of them are up to twenty four months, eighteen months,
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some of them are as low as twelve months. If you don't have
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a plan to pay it off, don't do the transfer because it's now that
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it costs you even more money. You pay a transfer fee, and then
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you're going to get hit with all of the deferred interest. So this comes
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down to a household budget. This comes down to cutting expenses. Where is
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the money going to come from if you can't, if you don't have access
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to borrowing money to pay down the credit card debt at a better interest rate,
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restructuring your own debt. Then you got to cut expenses. That's where
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the money has to come from. Netflix, Spotify, Hulu, Roadblocks,
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Xbox, PS four, Prime Video, Prime Music, all the subscriptions that
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we pay for Now average household is around two hundred dollars a month in subscriptions.
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That's called the cord subscribed. Subscribed, Yeah, cut the cords,
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cut the subscriptions. Take that money. And there's two ways to pay off
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credit card debt. It's the avalanche method, where you're going after the credit
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card with the highest interest rate. If you have an extra fifty bucks a
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month, you don't break that up amongst a couple of different cards. Consumers
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used to do that and made them feel good. Right, I'm going to
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pay down all of my credit cards an extra ten bucks. Right. Let's
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say you have five cards. Mathematically speaking, you take every single dollar that
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you have and you put it towards one card. Now you have to pay
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the minimums and the other cards. The other way to do it is the
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snowball effect, where you're gobbling up the ones with the lowest balances. First.
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This gives us a good psychological boost. It gives us a shot in
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the arm as we pay off the accounts in its entirety, then you've got
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to cut the card up and not use it anymore. It's the same that
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holds true these balance transfers, personal loans, cash out refinance, any kind
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of debt, any kind of loan that you take out off your debt,
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you can't go back and can you start to have those balances creep up again.
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So two things here. Yeah, the avalanche method definitely works, and
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you just get rid of one and then take that payment there, get to
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the next, to the next, and you'll pay it off way faster than
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you ever would have. One thing like utilization rate you mentioned before. Obviously,
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paying the debt down is one way to decrease your utilization rate. The
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other way is to take out more credit cards not use them, hopefully because
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you would all want to succumb to the teaser rates and all that. And
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balance transfer a zero percent. You take it from the one that you're paying
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interest on, you move it to the other one, and you've got X
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amount more credits, So that could have a beneficial effect on your overall credit
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rating. Right, Yeah, And I just say that, and we talk
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about that and sometimes advise it with a huge grain of salt, because if
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you get them to increase your credit limits, right, you can ask for
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a credit limit increase, you could open up a couple of more cards.
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But if you've already demonstrated that you can't be responsible with the cards that you
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do have, you could put yourself even further in debt. So you've got
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to be really careful about that. But it's certainly a great option for people
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that have a plan to get out of debt. Okay. So the other
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thing is you have different types of credit on your credit report, mortgage,
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auto loan, personal loans if you have them, credit cards, consumer debt.
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If you have a dollar and you have your choice where to pay it
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off, which of those different types of credit, which one makes the most
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sense to pay first. So the greatest impact always comes from paying down your
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revolving lines of credit, which are your credit cards or home equity lines of
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credit. But if you have the ability to pay off other installment contracts like
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mortgages, student loans, at auto financing, if you can start to pay
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down those balances, that will also have a positive impact. FIKO has,
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you know, a closely guarded algorithm and formula, but if they look and
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see that you're accelerating the payment of the principal balances on those installment contracts,
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that'll have a positive impact on your credit score, but not as great as
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paying down revolving lines of credit ie department store cards and credit cards. All
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right, So it always pays to pay off the revolving loans first and then
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the the other ones, the auto, the heub, equity, and the
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mortgage second. Correct one hundred percent, you get more bang for your buck
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because the goal here is to raise your credit score, because if you have
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a lower credit score, you're paying more for everything. Right. Insurance you
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name it, yeah, yeah, you know. We try and let people
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know that in today's world, your insurance policies and premiums are directly tied to
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your credit score. They don't call it a credit score. They call it
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an insurance score. Guess what, it's a FIO score and it's based on
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your credit. So they called it an insurance score because the insurance companies lobbied
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to get a bill passed that would allow them to use personal credit to determine
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insurance policies and premiums. People scream about it all the time, or what
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does my credit have to do with my auto insurance? What does my credit
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have to do with life insurance? What does it have to do with all
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lowder's insurance? And all I tell them is, unfortunately, they proved an
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inverse correlation that says person with the lower credit score is going to get into
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more accidents, They're going to have more claims against their insurance, and the
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dollar amounts of those claims are higher than somebody with a higher credit score.
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So once they prove that, it was only an hore of time before they
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could get the law passed that said that they could use our credit in determining
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our insurance policies and premiums and Karader you mentioned all other transactions. People have
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to understand your credit score is going to cost or save you money every day.
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Right, So if you go, even if you're renting an apartment,
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when you go to have your utilities turned on, guess what they do.
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They check your credit sure and if you have if you have a lower credit
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score, guess what they want. They want a big security deposit. It's
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the same thing. It just keeps getting worse and worse and worse. It's
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a vicious cycle. So again, what we have to do is take a
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step back. We have to put some type of get out of debt plan
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in place as quickly as possible. The good news is it's always the case
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people that start a plan say to me within thirty sixty ninety days, Paul,
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I wish I would have done this six months ago, a year ago.
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So if you're in debt, come up with a plan. I can
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help you do it. There's all sorts of free apps and softwares out there
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now. I use mint dot Com, I use nerd wallet. I use
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all of these free apps and softwares to help me manage my debt. Because,
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look, life happens, right if you have a family, man,
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it can happen really really quickly, you can get yourself into debt. You
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know, let's say the car breaks down, you need to do windows,
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the house, the furthest the hot water heater. All of these types of
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life events can put a person in debt very very quickly. So what we
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always talk about is having a minimum of a six month reserve. That's the
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minimum we're looking at now trying to help people build a twelve to eighteen to
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twenty four month emergency reserve. It is one of the most important things that
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every single consumer can should do because it helps you stay out of credit card
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debt. You have to have access to money. How do you figure out
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your emergency fund? How much does it cost you to live every month?
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What's your rent, what's your mortgage, what's your car payments, what's your
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cell phone cable? All of your expenses, and if you want me to
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break it down even further, it's a household budget. Where does your money
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go? Most people have no idea how much money they spend every day.
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Right, they're using a credit card at dempit card, they're stopping at the
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convenience store. I think I mentioned the book the last time I was on
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your show. You're broke because you want to be right and because people they
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look at expenses. And that's why when you see these things on TV,
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everything's less than twenty bucks, right, Because if it's nineteen ninety nine,
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four ninety nine, twelve ninety nine, people don't blink an eye. They'll
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pay eight dollars for a cup of coffee. They'll pay six dollars. So
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if you do that every single day on your way to work or you're way
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home from work, if you're stopping for drinks with your buddies and friends.
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If you're going out to dinner and forget about or dish uber eats, all
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these crazy, crazy convenience deliveries. You're paying astronomical prices for food if you're
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eating out right now, I forget what the exact percentage is, but it's
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like one hundred percent to eat out. So you better make sure it's a
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special occasion because if you can't afford it, don't do it. Stay home
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or you know, order in at the very least, the worst case scenario.
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But you got to be able to plan ahead. You've got to be
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able to budget. Groceries are food insecurity groceries. That's a huge expense for
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a family. So you have to, you know, look for the sales.
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You have to shop, you know, intelligently and wisely, or that
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will wind up costing you that much more money every single month. I could
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not agree with you more. You know, it's it's just shocking that people
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don't understand that it's all part of one big package here, right. Yeah,
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if you can't afford it, you can't afford it. I mean,
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people really have to swell out of their pride and if all of your friends
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are going out and you can't afford it. Right now, I'm not saying
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you can never go out again. I'm not saying you can't go to dinner.
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But people that are doing it every week, every month and you can't
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afford it, and they're just putting it out of credit card, that's where
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you're going to get yourself in trouble. So just take a look at what
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you're doing every single day again. Use those free apps and softwares. There
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are all sorts of expense analyzers that are built into to those programs. It'll
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show you exactly where all of your money is going. Then the next step
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is to figure out what you can cut out. And once you do that
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and you take that money that you fet that new money, and you apply
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it towards your debt. I am telling you it's not going to happen as
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quickly as you got into debt, but it certainly happens more quickly than the
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average person thinks. I could not agree with you more here and really appreciate
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the common sense wisdom here that you've obtained over many, many years of doing
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this. If you had to calculate how many people that set on this road
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to fix their credit and their personal finances actually succeed. What percentage would you
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say, Fortunately for us, as long as the person that we have one
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qualifying question, are you in a position today to pay your current bills on
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time? Because if you are, then we have a program, a custom
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program. Every single situation is very unique and so they're all custom tailored programs.
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But if you're in a position to pay your current bills on time and
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you're willing to follow the program that we put in place, I'm not bait
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attest this. This is not something we're still trying to figure out. This
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is twenty years of developing a proven process. So unless a life event happens,
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maybe there's a loss of job, maybe there's a health issue to something
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like that, it's one hundred percent of the time the program works. Now,
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I'm not saying we're one hundred percent because life Unfortunately, life does happen.
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But if you ask me, we're talking about in the high ninety percent
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tile of getting people through our program because we do a really good job making
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sure that we're not setting up the client for failure. We're setting them up
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for six says, are you in a position to pay your current bills on
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time. Will you follow the program that we put in place for you to
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You have to be disciplined, you have to be responsive, You have to
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work with us. Right. So there's no magic pills, there's no magic
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sauce. This means that we're going to, you know, roll our sleeves
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up and get dirty and help you do it. But the person has to
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be willing, you know, to chip in a little bit for sure.
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Yeah, of course, of course there's no magic bullets here, right.
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Oh no, And if anyone says that they have one, you know,
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I'll go work for them if they truly have something that works like that.
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But this comes down to time. Yeah, it comes down to time and
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time management. But again, fortunately if you're if you're in a position to
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help yourself and you want to help yourself, we can certainly help expedite that
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process. People can do it themselves. But a lot of times, you
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know, there's situations, especially if you have third party collections, if you
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have judgments, you know, tax liens, those are some serious issues that
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require what I call professional help. Right. So, if it's just paying
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down your credit card debt and that's all you need help with you don't have
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to pay. You shouldn't pay anybody to help me do that unless you're looking
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to get into like a credit management program, which is a way that works
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for consumers. Also, credit management programs, make sure they're accredited, make
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sure they're nonprofit, make sure they have a great rating with the Better Business
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Bureau, get some peer reviews and recommendations and referrals. But credit management,
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these companies they just put they put pools of people together and then they go
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to the creditors, to the creditors and they say, listen, you're going
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to take Paul Oster's credit card. You're going to freeze it while he's in
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this program. But you've got to lower his interest rate to zero and he's
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going to go into an accelerated payoff program. Getting your credit cards down to
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zero percent is a very very powerful tool for the right person. So again,
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there's always a program out there as long as the person's willing to help
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themselves. All right, Hey, well that's a really fascinating discussion here,
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Paul, appreciate you coming on. Just tell us again where we find you,
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how we connect with you on the web, better qualified dot com,
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better qualified dot com. All right, in the show notes this interview on
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Financial Survival Network dot com. Make sure you click it and while you're there,
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sign up for a free newsletter. And if you have any questions from
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Paul myself, shoot me an email kl at Carrie LUTs dot com. Paul,
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we'll talk to you again real soon. Thanks for coming on, Thanks
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Carry, thanks for listening to Carrie Letz's Financial Survival Network, your solution to
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today's trying times. For the latest, go to Financial Survivalnetwork dot com.
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Financial Survival Network now more than ever,