Consumer Debt – How the Federal Reserve Rate Cut Impacts Your Debt

The Federal Reserve’s ¾ point, emergency rate cut appeared to be the shot in the arm that Wall Street needed. After a major sell off in the morning of the cut, there was a significant rebound in the afternoon. This rate cut was good news for banks. The ¾ point cut in the discount rate reduces the rate banks pay to borrow money. This was welcome relief for many. (In case you weren’t aware, many banks are hurting from the recent sub-prime mortgage meltdown. Citigroup alone is writing off some $11 billion in sub-prime mortgage losses.)

Action by the Federal Reserve was later echoed by commercial banks which then cut their prime lending rate by three-quarter of a percent, dropping the rate from 7.25 percent down to 6.50 percent. (The Prime Rate is the benchmark used in establishing most consumer loans, credit card interest rates, etc.)

And this may not be the end for rate cuts! Many experts expect the Federal Reserve to cut rates again at its Jan. 30 meeting. Some are even worried that this emergency action taken before the scheduled meeting may mean the Feds know something we don’t – more bad economic news on the horizon!

But how does all this market volatility and rate cutting affect you and your debt? Is there good news for the average consumer in any of this? The answer for savers is NO! They will face lower returns on their money. For those with debt, the answer is mixed; for some, yes, for others, maybe!

Good News for Home Equity Borrowers – For those with home equity or consolidation loans, you should see a drop in your interest rate by next month. These rates are based on the prime rate so they should mirror the prime rate cut.

Good News for Mortgage Refinance – If you have an adjustable rate mortgage, now may be the time to refinance to a fixed rate. According to Bankrate.com on January 17, the 30 year fixed rate was down to 5.75 percent based on their weekly survey. The Federal Reserve rate cut will most likely drive further cuts in the 30 year rate. Remember, when considering refinancing, you should weigh the mortgage payment savings benefits against the refinance fees. But all in all, it may be the best time to get away from a variable rate that will balloon in say, 5 or less years, especially given the weak housing market.

Mixed News for Credit Card Holders – Some credit card holders could get a break on their interest rates, but it will most likely be limited to those with good credit. It’s important to note that credit card rates don't always track closely with action by the Fed. It could be three months before card holders see the lower rates on their monthly credit card statements. And for those with poor credit, high debt to income ratios, late on payments, etc, you will probably not see any lower rates and those excessive penalty rates are unlikely to change either. Late fees and penalties are big revenue generators for the credit card industry and one of the primary means by which they continue to profit on those in debt in spite of rising credit card defaults.

A Silver Lining for those with high Credit Card Debt – If you have $10,000 or more in credit card debt and have already been late one or more times on your payment, now may be your best time to see if you qualify for debt mediation (or debt settlement). By enrolling in a debt settlement program, you could realistically be out of debt in months instead of years and for less than what you owe!

What is Debt Mediation or Debt Settlement?
Debt Mediation is a program in which a qualified settlement or mediation company works for you with your creditors, to “negotiate” a reduction in your unsecured debt. Under this type of program, each of your creditors agrees to accept a portion of what you owe them, in lump sum payouts, as payment in full, and marks the debt “zero balance”, which is very important and positive for your credit report. You’ll get out of debt for less than what you owe and in a fraction of the time it would take to pay off the debt just making the minimum monthly payments. Because they are settling hundreds of thousands of dollars of debt for hundreds of clients, they have relationships built over time and leverage with your creditors that you don’t have.

Who should you contact? – There is one company than stands out because of their excellent track record (quality service and results) and their unique approach. I recommend that you start with this company for a free debt consultation.The program is Credit Card Relief™.

Nationally Recognized Attorney-Driven Approach - Their program is unique in that Credit Card Relief uses a network of participating program attorneys, local to their clients, and provides a free initial consultation to determine if debt mediation is the best solution. Once enrolled, your creditors are contacted and told that you now have representation in settling your debt. You now have a professional working for you. That’s where your relief starts. The debt is then mediated by a nationally recognized debtor mediation law firm.

Great Track Record - Credit Card Relief has years of experience, settling over $110,000,000 (one-hundred and ten million) of debt for thousands of clients.

Operates in 46 states.

Low Monthly Payment – Credit Card Relief can cut your monthly payment by as much as 50%. They also have reasonable fees that you can live with.

Your Money is Safe - In addition, each Credit Card Relief client is part of a unique Enrolled Member Trust, through which all their funds are deposited into a totally insured, risk-free trust account with a national bank. No money leaves your account without your permission.

Satisfied Clients - Credit Card Relief provides superior service, with on-going support throughout the duration of the program, through their full-time Client Care and Compliance departments. They have Zero open complaints with the more than 400 Better Business Bureaus (BBB’s) and the over 16,000 local, state, and federal regulatory agencies monitoring the industry.

You can obtain a free debt consultation from Credit Card Relief™ by clicking here.

Or call (866) 960-5454

They can help you determine the best solution for getting you free of debt. For more information, click here.

Don’t Delay! Don’t let embarrassment, stigma, or the sense that negotiating your way out is not the moral way to get out of debt. The Credit Card Industry is one of the most profitable industries in the United States with annual earnings around $30 Billion. Citibank alone earns more profit than both Wal-Mart and Microsoft. Yet this industry has more complaints filed against it than any other industry in the U.S. Getting debt free and starting a financial plan to build wealth instead of debt is one of the best things you can do for yourself and your family.

Consumers with Low Credit Scores Are Being Targeted

Christmas is just around the corner and the lending institutions are peddling credit cards like there’s no tomorrow. This week alone, I received 6 credit card offers in three days -three of which were from the same bank. Is it just the anticipation of so many consumers using credit to fund their must-have holiday gifts and vacations that’s driving all these offers? Partly…but there’s a lot more going on here than the hope of cashing in on holiday mega-spending. There is a major shift in lending that is coming to the forefront.

Banks and other lending institutions are shifting away from mortgage and home equity lending. The shift is a direct response to the fallout from the sub-prime mortgage crisis and the drop in home values. Home foreclosures have reached the 1 million mark and are rising. Home values in some areas have dropped by as much as 40%. Many homeowners needing to sell, in order to get out from under rising mortgage payments they can no longer afford, can’t. Home equity values across the board are at record lows, due to lower home values and tapped-out equity borrowing, and with nearly 5 million adjustable rate mortgages due to hit within the next year, those in the financial industry are skittish about the next bubble to burst. Even the government is getting involved, trying to come up with a plan to help out sub-prime mortgage holders (it's really the impact on the banks they are worried about) in an effort to keep the economy stable.

Where once there was plenty of money to be made in mortgage refinancing and home-equity lines of credit, the growing crisis has led many to tighten their lending belts - that is, all except for one area. Credit cards have become the new cash cow! In fact, in 2007 the sub-prime market (households with low credit scores of around 600) has become a major target. Some creditors have as much as doubled their direct mail credit card offers to sub-prime customers as compared to 2006. But this isn’t particularly good news for those with less than stellar credit.

The Pitfalls of Sub-Prime Credit Card Offers
These sub-prime targeted credit card offers have some major pitfalls. These offers come with higher interest rates - 25% to even 35%, lower credit limits, usually have annual fees and some even impose an account setup fee, and typically they come with higher fees and penalties. If you accept one of these offers, you can also be assured that the issuer is going to monitor your entire credit activity and general bill paying carefully and if you are late on any other bills you have, they will most likely use it as a reason to raise your interest rate even higher. The sad truth is they can do all of this legally and it’s all in the fine print – if you took the time to read it and were actually able to understand it. They want your business, but if you default on your card, they are going to make sure they have made as much as they could on you in the form of interest, late fees, overdraft charges, and annual fees. After all, that’s where the money is anyway. In 2006 alone, the credit card industry made some $90 billion in interest and $55 billion in late fees.

Instead of falling prey to compounding credit card debt, use this time to make a resolution and begin a plan to put yourself on the path to financial freedom in 2008.

Get Out of Debt While Cutting Your Monthly Payment
If you’re one of the thousands of people with high credit card debt (over $10,000), have minimal savings and are the one in six who pays only the minimum due every month, then you need a realistic plan to get yourself out of debt and start working towards improving your credit rating. By enrolling in a debt settlement program, you could realistically be out of debt in months instead of years and often for less money per month than what you are currently paying, including interest and penalties. For more information about what debt settlement is, how it can help you, and who you should contact, read my blog dated September 29, 2006.

Don’t let embarrassment, stigma, or the sense that negotiating your way out is not the moral way to get out of debt. The Credit Card Industry is one of the most profitable industries in the United States. Citibank alone earns more profit than both Wal-Mart and Microsoft. Yet this industry has more complaints filed against it than any other industry in the U.S. Getting debt free and starting a financial plan to build wealth instead of debt is one of the best things you can do for yourself and your family.