Latest / Financial Survival Network / Inflation's Impact on the Younger Generation, Credit Scores and Mortgage Approvals - Paul Oster #6097

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Inflation's Impact on the Younger Generation, Credit Scores and Mortgage Approvals - Paul Oster #6097 · Financial Survival Network

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You know what they're doing. They're increasing their credit card balances at a rate
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again that we've never seen before. It's worse, worse than we've ever seen.
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So the younger generation, the entire population, really hasn't gotten the message.
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We continue to spend money. It's starting to cool off a little bit,
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but the under thirty crowd, man, they just refuse to change their
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behavior. You are listening to Carrie Lutz's Financial Survival Network, where you get
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valuable information. You just can't find anywhere else to thrive in today's trying times.
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You need the Financial Survival Network now more than ever. Go to Financial
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Survivalnetwork dot com and get your free newsletter and gift. Financial Survival Network now
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more than ever, And welcome you are listening to and watching the Financial Survival
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Network. I'm your host, Carrie Lutz. Well, hey, inflation,
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it's kind of like death taxes. Inflation is always with us. It's just
1:03
that sometimes it's more noticeable than others. Like right now, how many of
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you are feeling the pinch the higher prices and the gas pump at the supermarket
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when you get your mortgage statement. If you had to buy a house after
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rates started going up, you're feeling it, and you're feeling it really big.
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And our good friend Paul Ouster is here from a better qualified dot com.
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Paul A. Inflation's bad, but if you don't have good credit,
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now it's even worse, isn't it. Yeah, So you just hit the
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nail directly on the head, because it's not just interest rates, right,
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insurance premiums, so homeowners insurance, your property in shorts, your auto insurance,
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those things are all directly tied. Property and casualty directly tied to your
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credit score. And we'll call it a credit score there. It's alden in
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short score, but it's based upon the same information that's used to determine your
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mortgage interest rate. So the cost of owning a home, uh, and
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it varies when you start to look at everything. But the cost you know,
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for goods and services have have risen so dramatically and so quickly that it's
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it's become cost prohibitive, especially for the younger population to even purchase a hole.
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So that's why there's literally, you know, the real estate market is
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so stagnant. We've never seen anything like this again in our in our brief
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history here, because we've never had the perfect storm that we have right now.
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So it's not just the interest rates, it's it's it's everything else.
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Okay, you know we joked about it when when it first came out,
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But the dollar store is no longer a dollar store. It's a dollar ish
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store out of business. Didn't they you go out? Because they can't say
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people didn't want to pay more than a buck. Yeah, well so we'll
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see, we'll see what ultimately happens happens there. But look at the fast
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food chains, right they're all trying to play catchup and say, well,
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we better go back to the two dollars menu, the five dollar menu,
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because they were all I don't want to say they were price gouging, but
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they were pushing the envelope during COVID, during the free money pandemic, nor
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are the really good times here. Retailers were pushing the envelope to see how
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much they could actually charge will what would the market bear, you know,
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for a fast food hamburger, And they found that consumers were willing to spend
3:42
a tremendous amount of money relatively speaking to what they were doing before COVID.
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Look at all the delivery services, the convenience services, Door Dash, Uber
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Eats. You know, if you order something through those services, you're paying
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ten twenty percent set more than what you would if you drove, you know,
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to the fast food chap. So all of those things combined. Now
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now the retailers are also getting hit. You know, they get hit with
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the cost of goods and services. All of their production costs are through the
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roof. So now they're trying to figure out a way to play ketchup and
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go back to the consumer and say, hey, Carrie, we're sorry,
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we were you know, we put the hammer down on it for the past
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couple of years. Come back to us and we'll start to give you some
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discounts. Hey, you know, I saw a shocking statistic ball fast food.
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I'm not a fan of it, but you know, on occasion,
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that's all there is. It's up seventy two percent like in the last three
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years. Man, that's way worse than any other stated inflation other than energy,
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which three years ago, three and a half years ago is a buck
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eighty a gallon. Now it's in the flours. I mean, man,
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how does it's enough to make you want to cook food at home? Isn't
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it? Well? It should be. But unfortunately, again what you're saying
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right now is spot on, you would think, and again, especially this
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younger generation, let's say, folks that are under the age of thirty,
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it's like they haven't got the message. They haven't changed their behavior. You
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know, what they're doing. They're increasing their credit card balance is at a
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rate again that we've never seen before. It's worse, you know, worse
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than we've ever seen. So the younger generation, the entire population, really
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hasn't gotten the message. We continue to spend money. It's starting to cool
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off a little bit. But the under thirty crowd, man, they just
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refuse to change their behavior. And what that means is that they're just increasing
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their debt. You had the student loan deferment period end. That's starting to
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take its toll along with everything else. And that's the segment of the population.
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And we see it credit card delinquency. So credit card balances are increasing,
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you know, at just a tremendous rate. But thirty day delinquencies,
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sixty day delinquencies are all creeping up very quickly. We see auto delinquencies starting
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to creep up. We see mortgage delinquencies, pre foreclosures and these are all
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the early indicators that the consumer is not even able to tread water anymore.
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I mean, forget about putting money into savings and all that again, all
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that good stuff that was happening when there was literally free money being thrown around
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as now gone by the wayside. We were all hoping for at least one
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rate cut, if most people were hoping for multiple rate cuts during this year
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twenty twenty four. We're lucky if we get one. We're lucky if we
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get one. So the average interest rate on a credit card is now close
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to one one percent. It was fifteen percent, less than two years ago,
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which was saying every time, yeah, well, but what's happened is,
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you know, average people that were paying fifteen percent, and unfortunately,
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folks with bad credit, we're paying close to thirty percent. Now you have
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average interest rate is just that much closer to the same as somebody with bad
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credit. So you're paying twenty one percent to borrow money out of credit card,
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you're paying twenty nine thirty percent if you have bad credit. You're paying
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twenty nine to thirty percent on department store cards at this point in time,
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and again, most people have never had a lesson in how to manage credit
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card death. They have no idea about daily compounding interest works, and I'll
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just I'll set it up in a couple of sentences. Daily compounding interest means
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that your balance is going to increase every single day during the billing cycle.
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Then you'll get hit with all of that interest at the end of the billing
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cycle unless you pay it off in full. If you don't pay it off
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in full, your ballot, you could cut the card up and not spend
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another dollar. At the end of the billing cycle, your balance will be
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higher than when you started the months. Every single day it increases. So
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people have to understand how to get out of credit card debt. It's not
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easy, but it's certainly not complicated either. They just have to be willing
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to be disciplined and get themselves into a debt management plan. Yeah, so
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true, so true. I mean, Einstein always said he was mystified by
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the power of compound interest, and that guy was probably the smartest guy in
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the world. There's certainly one of the top five. So if I can't
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figure it out, how do you think you're going to figure it out?
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Just look at your credit card statement, right but this is yes, this
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is not sustainable, dear Paul, is it? It is not? So
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what happens is, you know, every financial transaction is based on emotion,
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and right now again we have all this pent up demand still, so people
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say, well, you know, times are tough and things are rough,
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so I deserve the hot tub. I deserve to go on the cruise.
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I deserve even though in the mental math that they do in thirty seconds,
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they know they can't afford it. But you know what I mean, I
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have some room on my credit card. I well, you know what,
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I'll go on and apply for this buy now, pay later stuff a firm
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and Karna and all these. That part of the economy has not even reared
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its ugly head yet. It's not factored in to the current credit card debt
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that we see, you know, spiraling out of control. Once we get
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our handle on those facts and figures, it's really painting a bad picture for
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the average consumer. We're right now, Yeah, isn't that the truth?
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Uh? Yep? So look, you know what do you do? Yes?
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So the message, the message is clear for the young people. Look,
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if you need something and you have to put it on your credit card,
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that's different than buying something that you want right. If you need a
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roof over your head, if you're you know, you got to replace a
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window, you got to you have an emergency repair in your car. That's
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different than stopping at the convenience store every day. If you can delay the
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big ticket items, you know, your durable goods, If you can delay
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that for six to twelve months, hopefully we do get a rate cut.
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Hopefully we do see the inflation continue to cool off a little bit and the
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prices of the goods and services will come down. So shop around, even
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with grocery shopping, you know whatever, the percentage is supposed to be obviously
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varies from household to household, but shop your pantry before where you go shopping,
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Shop around before you go shopping. That we did a thing that actually
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was down at Florida. I don't know if you and I had spoken about
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it, but I think it was Kroger and they stopped their delivery services.
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They were looking to get rid of all these discounts. And you know,
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maybe it's time for consumers. If you if you know what, if you've
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shopped around and you have a list and a budget, hopefully to start with
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go online and take a look. You might find that the place three blocks
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away has chicken for you know, two dollars less a pound. It's on
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sale. So again, this is a very very big change of behavior for
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most people. But if they don't change their being gone, if they don't
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change their behavior, and they don't you know, figure out how to do
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things differently, they're going to get themselves in trouble. So true, a
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maoun so true and so uh ok. So you get it under control.
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But it's easier said than done, isn't it. Well, you have to
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have a plan. Yeah, and we say this all the time. You
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have to kind of swallow your pride, raise your hand, realize that you
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are in trouble, and then figure out how you're going to deal with it.
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Maybe you could take a short term loan from a family friend. But
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if you have any any balances on your credit card, it's got to be
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your number one focus. Because if you're putting money into a four to oh
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one k right now and you're earning let's say four or five percent, it's
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gotten that part of this economy has gotten a little better for the savers,
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But you're earning four or five percent over here, but you're paying out thirty
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percent over here. The math doesn't add up, so you have to Every
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dollar that you put towards credit card debt is like getting a thirty percent return
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in the market. So come up with a plan. Figure it out.
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The first thing you have to do is stop spending. Maybe it's time to
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you know, get that second gig. You get a part time job for
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a little while. You take every penny and apply it towards your credit card
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debt. There's only really two accepted ways to pay off credit card debt.
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The first one is you you pay off the credit card with the highest interest
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rates. First, obviously you got to pay the minimums on all your other
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cards. And then the other method, the snowball effect, is where you're
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you're paying off the balance is the smallest balances first and foremost. It gives
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you a good sense of accomplishment. It's a positive feeling for people. Does
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it work for that knockdown or something? Well, Avalanche is paying we use
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avalanche and snowball. Balanche is going after the highest interest rate. Snowball is
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you know, kind of the snowball effect. You're gobbling up the smallest ones
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as you roll along. But listen, Kerry. If you can't figure it
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out on your own, fire a company to help you. It's like hiring
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a personal trainer. Right. So, there are some tremendous nonprofit groups out
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there. They're credit counseling companies, debt management companies. You're going to pay
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them a management fee, but it's worth every penny in what they're going to
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be able to save you. Not to mention, they keep you on track,
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right, and they hold you accountable. But more importantly, they have
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much more leverage with the creditors. If you call your credit card company and
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ask for help, you're one person, right. These companies have thousands of
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clients, so their leverage is far greater than what we have. So they're
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able to get better terms and conditions. You're talking about principal balance reductions,
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you're talking about zero percent interest while you're paying back those cards. So raise
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your hand, swallow your pride, ask for help. Obviously, do your
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homework. Not all even if they're even if they're nonprofit companies, they're not
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all created equally. So you're going to get you know, you have to
15:13
do a little homework and make sure you wind up with the best fit for
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you when you're researching these types of companies. Yeah, yeah, So the
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key is you got to do something. One thing that's really good about companies
15:26
like yours is it creates a effectively an accountability coach. Yeah, that's it
15:33
person. So you know, if you miss it, you know you're not
15:37
going to beat them up, but you're going to say, hey, look,
15:39
you're not achieving your goal here. You got to step this up.
15:43
Don't go to Starbucks and don't you know, cook it home. Don't think
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you're saving money on fast food. And you know, hey, go to
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Costco for gasoline, whatever you need to do, right, but don't go
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shopping thereafter, because you're just going to blow a lot of and raise your
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credit card balance. Right. Listen. One of the things we track every
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single month for every single client is their utilization ratio. And that's the difference
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between your credit card balances and your credit limits. And we track that like
16:15
a hawks because it's an indicator of where the client is and if they continue
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to increase their utilization ratio. Look, it's the second biggest factor when we
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talk about credit scores. Let's just take a step back. There's five factors
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payment history is number one, right, rightfully, So you pay your bills
16:36
on time, you're going to have a better credit score that somebody than somebody
16:40
who misses thirty day late payments sixty day lay payments. But the second biggest
16:45
factor is your utilization ratio, And the credit score has nothing to do with
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your income. Your credit score has everything to do with how much credit you
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have available and how much credit you're using. You have to have to pay
17:00
attention to that. Those two things combined are sixty five percent of the overall
17:06
score. Then you have credit history, right. People ask me all the
17:10
time, oh, should I close this credit card? Before you close a
17:14
credit card, you should do a deep dive credit analysis to make sure it's
17:18
not going to have a negative impact. In your mind, you would think
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there's no way that closing a credit card could actually hurt me, but from
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what we've seen over the past twenty years, it's the number one thing that
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can hurt someone besides late payments and collections and judgments and charge offs. Closing
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a credit card, think about your utilization ratio. Whatever credit you had available
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on that card is wiped away, and whatever credit history you had for that
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account is also wiped away on the day you close it, so be careful
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about closing it. Then you have types of credit. There's really only two
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installing contracts and revolving your installment contracts or your mortgages, car payments, UH,
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student loans where you have a fixed monthly payment revolving, or your credit
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cards. And the last piece, you know, is that new credit piece,
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and that's where your inquiries can can hurt you. Look, you're there's
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a risk of only losing a couple of points for each inquiry, but people
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get themselves in trouble by applying for numerous cards. You know, you buy
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a new house, or you're or you're looking to get a house, or
18:37
you and you're you're applying for far and all this stuff. Those inquiries start
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to add up very very quickly, and it can tank your score pretty quickly.
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So be careful about how many people you allow, how many creditors you
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allow to actually pull a hard inquiry for your credit report. And let's not
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forget that. You know, when you go applying for new cards and you
19:03
get new cards, that also dings your credit report. Assuming you can get
19:08
it right for sure, it takes about six months. We call it seasoning,
19:14
the tradeline and the new account. So the new account is scary to
19:18
the fight O scoring algorithm or the vantage score algorithm, because no one knows
19:25
how you're going to manage this new debt. So if you open a new
19:30
account, it's open, active and positive. After about six months, it
19:34
might actually help you. But in the beginning, make no mistake or doubt
19:40
about it, you're going to lose some points just by opening that new account.
19:45
This is why you know we deal. We're very very much referred within
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the real estate industry. Lenders and realtors and real estate agents. They cringe
19:57
when they're go going through the home purchase pro process and the barer buys new
20:06
furniture as soon as they put the contract in on the home. They buy
20:08
new furniture. They don't use their debit card, they don't pay cash,
20:11
they open the line of credit with the furniture store because they're going to save
20:18
fifteen to twenty percent. Never ever fall for that trick. It's a marketing.
20:25
The marketing geniuses put together those point of sale discounts for good reason,
20:30
but that could actually we've seen it destroy the home purchase process. Someone was
20:37
not able to buy a home because they opened a new account. And it's
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not just one person. Unfortunately, over the past twenty years, we've seen
20:45
it happen numerous times. They bought a new car, they got a new
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credit card, department store card, they co signed for student loans. Those
20:55
are all the types of things that can actually sink a real estate transaction.
20:59
So consumers have to be careful. Yeah, careful with your credit. That
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should be the byword. And one little trick I saw was people that had
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the money and they don't have a lot of the a lot of credit to
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actually make prepayments on the cards so when the charge is hit, it doesn't
21:22
up their utilization rate and they're basically the scores stays around the same. Brooking
21:30
micro payments on any line of credit is always a good idea, but especially
21:34
for credit cards because remember what we said about daily compounding interest. It's based
21:41
upon yesterday's the week before, whatever those ballances were. So let's just say
21:48
you were you know, you're going to pay one hundred dollars towards towards this
21:52
credit card. Make four payments of twenty five dollars, make two payments of
21:56
fifty, make free payments of thirty three thirty three, however you want to
21:59
do it without driving yourself crazy. But any micro payments that you can make
22:04
bi monthly weekly instead of that one lump sum, whether it's for your mortgage
22:11
or your credit cards, will always help you decrease the amount you're going to
22:15
pay an interest. Yeah. Yeah, And just because they watch it,
22:19
they give you the pay once for the month doesn't mean you can't be paying
22:25
weekly. And you could just set up auto transfers from your account. You
22:30
sure catch charged anything more for it, of course, and you will wind
22:34
up paying less interest and raising your score in the process. Absolutely, absolutely,
22:40
there's a great point saving money on interest and keeping your utilization ratio lower
22:45
than what it would be if you only made one payment, right, and
22:48
especially if you're going to be going for a mortgage or something and you're on
22:52
the edge, I mean, you don't need what do you need for a
22:55
mortgage? Well, obviously the higher your credit score, the better the cheaper
22:59
the you're going to be paying. So that's going to be a benefit,
23:02
But you've got to get over the threshold of six eighty or whatever it is
23:06
these days. Actually, some lenders, you know FAJ lenders are still going
23:10
down to about six twenty. It's somewhat of a sliding scale based upon down
23:15
payment, what percentage you're gonna put down on the on the home purchase.
23:22
But again it could come down to the point where one, five, ten
23:30
twenty points could make the world of difference of not only just getting approved,
23:34
what how much it's going to cost or save you. You know, in
23:37
interest everything is based upon what's called tiered base pricing, So every lender has
23:45
different tiers and that's where they're going to offer different interest rates. So as
23:49
your score goes down, your tiers go up in terms of your interest rates.
23:55
And again a six nineteen is not a six twenty. Six twenties not
24:00
a six thirty, so all of those. Every time you go up or
24:03
down at a tier, it's going to cost or save you money. So
24:07
people look, I say it all the time. You don't have to be
24:11
crazy about it and watch it every single day, but especially if you're thinking
24:17
about financing anything, you better start paying attention to your credit score. Hey
24:22
couldn't agree with you more. That's why we always love having you on here,
24:25
Paul. Hey just tell us again where we find you, how we
24:27
connect with you, on the web. Yep, go to better Qualified dot
24:32
com. All right links in the show that's to this interview on Financial Survival
24:36
Network dot com. Please, when you visit the site, sign up for
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you want to supercharge it, then you definitely want to talk to Paul my
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email case you got a question for Paul and myself at carrie lets dot com.
25:00
Paul, thanks for coming on again and we'll talk to you again real
25:03
soon. Thanks, Carry, I have a bid one. Thanks for listening
25:06
to Carrie Let's's Financial Survival Network, your solution to today's trying times. For
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