Latest / Financial Survival Network / Student Loan Wrecking Ball Coming for the Economy -- Paul Oster #5887

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Student Loan Wrecking Ball Coming for the Economy -- Paul Oster #5887 · Financial Survival Network

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These young borrowers are in for a very rude awakening. Nobody cares so on
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September one. The billing cycle starts on October one. The first payments are
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due with interest by the way, that accrued from September one to October one,
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and if you don't make your payment, it is going to have a
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dramatic negative impact on your credit scores. You're listening to Carry Letts's Financial Survival
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Network, where you get valuable information. You just can't find anywhere else to
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thrive in today's trying times. You need the Financial Survival Network now more than
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ever. Go to Financial Survival and Network dot com and get your free newsletter
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and gift. Financial Survival Network now more than ever. And welcome you are
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listening to the Financial Survival Network. I'm your host, Kerry lets It's a
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big day on Wall Street, big day for America. Credit card balances receivables
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have just hit the one trillion dollar mark, and one trillion to me is
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the definition of a bubble. Our good friend Paul Auster is with us now,
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and Paul, it's great to have you back on the show. I've
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got a question for Paul or myself. Just shoot me an email k L
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at cariblots dot com and Hey, Paul, it's always great to have you
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on. If people want to reach Paul, you find him at better qualified
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dot com. Paul, you are our resident or nonresident credit card expert.
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What do you think the significance is of that milestone? Well, there's two
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parts to occurry. And unfortunately, not only is there the balances on our
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credit cards, it's more than creeping up. I mean we're amassing debt now
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that we haven't seen since the Great Depression, not the last recession depression whenever
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you want to call it back in oh seven, o eight, oh nine.
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We're back to the Great Depression relatively speaking in terms of people drowning in
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debt. And you just had the New York Federal Reserve release a survey on
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credit card delinquencies and auto payment delinquencies. So when you couple that together,
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all it means is that the average consumer is now they can't afford to pay
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their bills and they're starting to drown in debt. And let's not forget September
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one starts the billing cycle again for student laws, and there's a large,
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large percentage of those student loan borrowers who say they're not going to be able
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to make you know, the first payment, right, So they can't even
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make the first ament, and so these people are going to be they're going
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to pretty much have their credit wrecked, aren't they. Yeah, So you
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know that's the that's the you know, this thing has a lot of legs.
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So what happens is along with credit card balances, you know, your
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your credit score. Your income has nothing to do with your credit score.
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Your credit score is based on a couple of different factors. But one is
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payment history, makes sense. The second one is your utilization ratio. So
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the credit bureaus don't know how much money they you make. What they do
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know is how much credit you have and how much credit you are using.
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And once you go over the thirty percent rule, your credit card balances are
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thirty percent more than your credit limits, your credit score start to come down.
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So we're already seeing that, you know, in our line of work
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here, unfortunately, our clients credit card balances are going over the thirty percent
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mark, credit score start tom down and they come down quickly to go over
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fifty percent, eighty percent. If you go over your credit limit by one
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dollar, right, Okay, Let's say you have a credit card, you
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have a thousand dollars limit. If for whatever reason, at some point you
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go over that you put a thousand and one dollars on that credit card,
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your credit score it could easily drop fifty points, maybe up to one hundred
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points. And now if you throw in delinquencies, a thirty day delinquency,
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fifty to one hundred points easily, Especially the younger the bar work or the
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consumer, the greater the impact is. Because you have what's called a thin
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credit profile. So if you have a long, storied credit history, have
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numerous accounts have been opened and closed, you have a great, great credit
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history. A one times thirty day lay payment may only cost you thirty points.
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I say only with you know, a grain of salt, and but
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yeah, but if you're a young credit profile, that thin credit profile,
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it could easily cost you fifty to one hundred points, which now can keep
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you from getting approved to go buy a new car. If they keep you
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from getting approved to go buy your first home. You know, everybody wants
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to be a first time home buyer. It's the American dream to own your
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own home. But that comes at a cost, and all of the things
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you see now the Federal Reserve continues to raise rates. Who knows what's going
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to happen at the next meeting, But every time they do that, our
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credit card interest rates go up, and our thirty year fixed mortgage interest rates
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go up. But when you hear that the new mortgage interest rate is six
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and a half, that's for people that have a seven forty credit score or
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better. If you're a seven twenty, if you're a seven hundred, a
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six eighty, a six eighty credit score. You know, I don't like
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to use bad and good credit. I just say, you know you're less
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than excellent, less than perfect. You have a lower credit score. I
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don't want to say a six eighty is a bad credit score, but what
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I will tell you is it's going to cost you a lot more money for
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every other financial transaction. Mortgage interest rate, you're not at six and a
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half, at a six to eighty, you could be at a seven and
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a half. You know, insurance policies and premiums are directly tied to our
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credit. It'll call it a credit score, they call it an insurance score.
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It's the same damp thing. So especially you know when it comes to
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insurance policies and premiums, especially in the Northeast, you could be paying ninety
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percent more for the same coverage. If someone has excellent credit seven forty or
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above, and somebody has poor credit, let's say a six forty six,
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twenty ninety percent were for the same coverage, you know, nineties percent higher
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premium. So your credit score is going to cost or save your money every
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single month, every single day for all of our financial transactions. Unfortunately,
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right now what we're seeing and it's it's so funny, you know this.
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They've politicized this thing and it's become more and more confusing. You know,
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a month ago, they were telling us how robust the consumer index was and
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they were still spending money. The economy's great. No, we weren't spending
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cash. We weren't spending money on our debit cards. We're putting money on
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credit cards. So again, it's just an early indication. And I've been
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saying this now unfortunately for the past year. This is just the beginning,
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and we're going to start to see all because there's a lag time and a
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little bit of latency, and now we're starting to see it. Foreclosures or
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creeping up, pre foreclosures, thirty day mortgage blates, auto payments, credit
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cards, credit cards and auto payments, they're the really early indicators. But
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what's going to follow is your foreclosures, your short sales people are going to
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get in trouble with their house soon thereafter. So we're in for a bit
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of a bumpy ride here. Bumpy ride. You can we say you're calling
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for a recession or even worse. Well, I'm just gonna say it's it's
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going to be a bumpy ride. So whatever happens, you know, forget
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about the macro economy, right, I mean, we have we have wressures
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from the international platform is not very stable right now. We have a lot
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of issues all over the world coupled with what's going on right here in the
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United States. Again, I don't want to put a moniker on it,
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but we're in for a bumpy ride, all right. So we're in for
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a bumpy ride. How do you get through it? Because you're a problem
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solver. People come to you and not because you're a good looking guy or
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because you're a good person, but they've come to you to solve problems.
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Right, Yeah, it's a it's a great question. And what I tell
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our clients now is you have to focus on what you can control because all
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of the other stuff, let's face it, is out of our control.
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So what can we control. We can actually control our expenses, we can't
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even really control our income. Maybe it is time that you start looking for
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a second gig, you know, for the next six, twelve, eighteen,
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twenty four months, maybe for a couple of yeah, third job.
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Yeah, that's right. And look, there are people out there that are
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are juggling three different jobs. But you know what, they're paying their bills
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on time, So you know, you might not have to do it for
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the rest of your life. And you probably only have to do that because
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you don't have that twelve month emergency reserve. And if you don't have that
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right now, maybe you take every extra dollar that you make, if you
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work a weekends, you're going to work a couple of nights. Every single
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penny that comes in from the second gig goes into an emergency reserve fund.
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If you don't have that, that's how you get through a recession, that's
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how you get through the bumpy ride. You have to have some type of
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backup because if something happens during the downturn. What are you going to do.
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You're going to turn to a credit card. You're going to take out
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some kind of crazy personal loan that's you know, at thirty percent interest rate,
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and that's how people really get in trouble. Unfortunately, so you get
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a second gig or again, we can't really control our income. If we
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can't get a second job or certainly ask for a raise or get a better
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job, we have to cut expenses. And it's really hard to get Americans
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to change their behavior, and a lot of times it's too late. They
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change their behave when they're in the crisis mode. But if I could just
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get consumers to understand again, I'm a realist, I get it. But
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maybe instead of you know, going out to dinner every single week, you
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cut back to twice a month. Maybe maybe you cut out the convenience store
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on your way to work and you only hit it on the way on your
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way home, Or maybe you only hit it on the way to work to
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get that cup of coffee four dollars you wind up not finishing it. But
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if we can change our behavior before this gets too bad, those are the
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ones that are going to be better off in the end, because there's going
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to be a certain degree of people that have to file bankruptcy at the end
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of this whole thing, and then there'll be a group of people they don't
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have to file Chapter seven, they file chapter thirteen. So I always look
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like you're saying, at what is the solution, and how do we get
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this? How do we get through this with as little negative impact? So
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a chapter seven is kind of absolutely the worst case scenario. Chapter thirteens a
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little bit better. Maybe you have to go through a credit management program,
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maybe you have to do a little bit of deck consolidation. But if you
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don't change your behavior, right Freud said, at best, continue to do
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the same thing and expecting different results would make you insane. So if you
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don't change your behavior, then you are going to get the same results or
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worse. Because let's not forget also in the middle of all of this,
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interest rates continue to go up cost of goods and services, so now we
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have inflation on top of everything else. The average household paying five hundred dollars
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or more for the same goods and services that they did six months ago.
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So change your behavior, cut your expenses, and figure out how you are
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going to get through this, because you know the government's not going to help
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you through it. You know, the banks aren't certainly gonna No one really
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cares, right, so it could be the worst recession in the world.
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Bank of America, City, Bank Chase, they don't care, right,
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So you don't. You can't call them and say, but you saw the
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news. You know, the Fed keeps raising the rate and interest rates and
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the inflation, and they'll go, if you don't pay me by the first
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I'm going to report you into the credit puros. Right, there's no way
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around, right, or they're going to send you to collections. And it's
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the same way with student loans. These young borrowers are in for a very
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rude awakening. Nobody cares, so on September one, the billing cycle starts.
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On October one, the first payments are due with interest by the way,
13:39
that accrued from September one to October one, And if you don't make
13:43
your payment, it is going to have a dramatic negative impact on your credit
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scores. Hey, so what's a good credit score to have these days?
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Well, the best is seven forty or above, right, So it's called
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it's called tiered based pricing, and it happens with any type of underwriting and
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financial obligations. When you apply for financing, it's tiered based pricing. So
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seven forty or above. Look, the cost of money. Have all money
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costs money. So what it's going to cost me to borrow money at a
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seven forty or above, I'm going to pay the lowest amount. My cost
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will be the least amount at a seven And so it goes from like seven
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forty and above, and if you go backwards, if you're a seven twenty
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to a seven thirty nine, you might pay an eighth of a point higher.
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Now, on a small type of financing, maybe a car or something
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like that, it might not be that dramatic. And the eighth of a
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point on a mortgage of two hundred thousand dollars is a lot of money,
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you know, and then it sure then it goes seven hundred to seven nineteen,
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you're going to pay more six eighty to six ninety nine or paying more.
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So once you get below a six sixty, let's call it that is
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that is what's considered subcrime borrowing. You're going to get, you know,
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you're really going to get hammered with fees and deposits, and it's going to
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cost you that much more to more money in your overall annual percentage yield for
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sure. All right, So what so basically, you gotta you gotta get
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your act together. You gotta confront the ugly reality, whatever it might be,
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and then you gotta you gotta go do something right. You gotta take
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action, whether it's yeah or whatever. Again being pro proactive and taking action.
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You know, I tell everybody, if you don't have a financial planner
15:54
on your side right now, maybe you go get one or you use one
15:58
of the software that are out there. But here's and I'm not a certified
16:03
financial planner, but I will tell you personally, what drives me crazy is
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you have people that are putting money into a retirement account and right now you're
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actually, you know, earning a little bit more than you normally would.
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But let's say you're earning five percent. But people who are putting money into
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a retirement account while they're carrying credit card debt and paying thirty percent on the
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debt. That does not make sense mathematically. So maybe you pause your contributions
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into your four oh one K or whatever your roth Ira whatever you're doing,
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and hopefully you have the ability to do that, but you pause those those
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contributions until you pay down your credit card debt. Look even at seven percent
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interest on a mortgage, if you could do a cash out refinance and consolidate
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all your other debt and then you only have one long term debt service at
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seven percent, that might make sense. Also, So people like you just
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said, you have to take action. If you just sit back and let
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this thing, you know, barrel you over, you are going to be
17:11
roughed up. You're gonna you're gonna be bruised up a little bit at the
17:15
end of it. So do something now, be active about it. Be
17:19
proactive. Call the call the creditors, call your mortgage company, call the
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loan servicing company. And for any of the young people, if you're listening,
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there's only one place to go for information on your student loans, or
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maybe you're a parent who co signed for your child. It's student aid dot
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gov. Student aid dot gov. We already see the scams. Uh.
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The CFPB released a report the other day. The companies millions and millions of
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dollars. Unfortunately, borrowers have already been scammed. Out of millions and millions
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of fee that they've paid to companies that promise to help them. So only
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go to student aid dot gov. That is where you're going to get the
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most curtain and information regarding your student loan. Or pick up the phone and
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call your student loan servicing company. It may have changed by the way in
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the past three years. Do lot wait until September. So look, that's
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right quarter, right, so maybe today is the day they actually do something
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before September. And if you haven't done it, do it sooner than later
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because they will be inundated when these first payments actually come due. When people
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can't make their payment, you will have much better success if you do something
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right now and reach out to the servicing company. That makes so much sense,
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Paul, I think that is the best piece of advice that you have
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given us today. And look at these are hard times, no question about
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it. And they've ideal is never wait till you need a favor, ask
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for it when you think you don't need it, right. Yeah, I
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always say, you know, you cannot borrow an umbrella when it's raining,
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so reach out to somebody now. But here's the other side of it,
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because again a lot of times unfortunately, carry what I'm on. I'm like
19:21
the doomsayer. But the reality is that we have gotten through every other situation
19:26
before. I've been doing this for over twenty years. You've been around for
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a while. We'll get through it. Just a matter of how we get
19:37
through it. And I never want someone to feel that they're so overwhelmed with
19:42
debt. Look, unfortunately, it's tragic people people commit suicide because of debt,
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and that should never it should never ever happen anywhere in the world,
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and certainly in the United States, because there is a way out of debt
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always, there's just we have to be disciplined, we have to figure it
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out and put a plan in place. If you just let this thing kind
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of unfold, if you don't, if you don't take any action again,
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you can expect to really start to feel some pain in a very short period
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of time. And how long and that pain last is going to be determined
20:22
by what action you took before this thing really starts to spiral out of control.
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So again, control what you can control. You can control your income
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to a point, you could ask for a rage, you could look for
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a better job, you can get a second gig, but which you can
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really control, or your expenses. And if you just started to cut out
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some subscriptions, some conveniences, some some recree both things some Yeah, So
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get rid of your cable. You don't need it anymore. You don't find
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virtually every program for free these days. Maybe not exactly the day you want
21:02
it, but it'll be there. And if you had a goal, you
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know, if you if you have to sacrifice something that you really really want,
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then you put a goal in place and say in six months, I'm
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going to get it back, in twelve, eighteen months, twenty four months,
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I'm going to get it back. Look those when I talk about those
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timeframes, that's a blink of an eye. Think about what happened in the
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past two years, twelve months, eight months. Those are blinks of an
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eye or even faster. So go to goal in place to get those things
21:30
back if you really need them. It's most of them. It's really the
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stuff that we want, not what we need. But be disciplined in your
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approach here. Get out of debt. If there's any way possible you can
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get out of credit card debt that's costing you thirty percent. So I think
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you and I have spoken about it. You want to you want to earn
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the highest return on your money. If you have credit card debt, pay
21:56
it off because paying down a thirty paying down that you're paying thirty percent on
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is like getting a thirty percent return in your money. And there are no
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markets in the world right now that are offering a thirty percent return. That's
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a guaranteed return too. Exactly, there's no risk, there's no risk.
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Every single dollar that you pay off in credit card debt will give you the
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exact interest rate that you were paying that on that money. So try and
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get out of credit card debt as quickly as possible, or at least stop
22:26
the bleeding, cut the cards up, freeze them again, reach out for
22:33
help. Look, if you if you come to better qualified dot com,
22:36
all we try and do is give you some options that you'll have to choose
22:41
from. You know, is it deconsolidation, is it credit management, credit
22:45
counseling, is it credit repair? Is it bankruptcy? Or are there just
22:48
a few things that you would have to rearrange, uh, you know,
22:52
in your debt servicing that would help you out. But do something right.
22:56
So if you want to start by going to better qualified dot com. Our
23:00
consultation is absolutely free, and at the end of the consultation at least you
23:06
will have the options that are available to you, and then you make the
23:08
decisions on how you want to do it. Hey, you know, if
23:12
you want to get out of a hole, the first thing you got to
23:15
do is stop digging. Right, That's right, that's right. That's really
23:18
the key. Well, appreciate you coming on a better qualified dot com.
23:23
That is where you find our good friend, Paul. I mean, we've
23:26
been talking for over ten years, Paul. We've seen a lot lot lot
23:30
of ups and downs here, and the key is planned to get through it.
23:36
Don't try to white knuckle it, because then you're going to be living
23:41
in fear. I mean, the biggest problem I see, and I think
23:45
you'll agree, is people go into a you go into a fear mindset and
23:49
then everything, every call, every knock on the door, you're scared to
23:55
death. Right, So the key is get out of the fear mindset and
23:57
take action. You're absolutely right, there's no reason to live in fear or
24:03
to live with the mounting pressure of the debt. Once you take the first
24:08
step towards getting out of debt every single client for the past twenty years and
24:14
said the same thing. I should have did it six months ago, I
24:15
should have did it two years ago. It gives you some type of freedom
24:21
and relief to start moving in the opposite direction. And the first step.
24:26
As with every single thing we do in life, the first step is always
24:30
the hardest. Just take the first step and the other thing. Like we
24:33
had said, Kerry, it's not as bad as you think. It really
24:37
isn't. It's never it's never been worse than somebody thought. Typically people come
24:44
in they just have the worst expectations in the world, and they say,
24:47
wow, okay, so this isn't going to be that bad. You know
24:49
in twelve, eighteen, twenty four months, maybe sometimes six months, I'll
24:56
be okay, yeah, you're gonna be fine. But just now you have
24:59
the plans, execute it and be disappointed. That's it, all right.
25:02
Hey, we appreciate you coming on better Qualified dot Com. Go over there
25:06
now. If you're having any credit issues but you think you might, Hey,
25:10
if you think it's going to be bad six months down the road,
25:12
call Paul now. It's that simple. Appreciate you coming on. Hey,
25:15
you've got a question for myself for Paul kl at Kerry Lutz dot com.
25:21
That's the email address. When you're at the site Financial Survival Network dot com,
25:25
just click poles link. It'll take you right over there and sign up
25:29
for your free newsletter. Paul, always a pleasure, Keep up the great
25:32
work. We'll talk to you again soon, Okay, take care. Carry
25:34
thanks for listening to Carry Lutz's Financial Survival Network, your solution to today's trying
25:41
times. For the latest, go to Financial Survival Network dot com. Financial
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Survival Network now more than ever,