Take Control Of Your Finances – With Our Help!

This is the real reason the banks aren’t lending. You’ve heard it in the news; the banks were bailed out with taxpayer dollars but they’re not approving loans for mortgages, auto loans or small business loans. Why is this happening if they have all this extra cash on hand to lend out?

The first thing that I thought of was that even though they were bailed out, the economic health of the people who want loans is poor. Just like the government has gone into debt while spending borrowed money, U.S. citizens have also gone into debt to finance their lifestyles. The reason that the economic collapse happened in the first place was because people who couldn’t afford to buy houses were taking out mortgages they couldn’t afford. And now, after the collapse, we expect the banks to make the same mistakes again? That would be foolish!

The second thing I thought of was that even if the people who wanted loans had perfect credit, the current economic conditions may not have justified lending money to anyone – even those with excellent credit - because in a time of layoffs, 10% unemployment and 20% underemployment, plus uncertainty in the market with new business-killing government regulations looming, and no job security, anyone’s ability to repay a loan is questionable.

While those two reasons make absolute sense to me, and to most who consider them, there is another reason that helps fully explain why no one can get a loan. Peter Schiff from Euro Pacific Capital explains the debt maturity problem.

Like the government, financial institutions took advantage of cheap money. Banks were able to lend money at low interest rates in the past several years because they were able to get that money at even lower rates. But just like your auto loan, or mortgage, there is a date that banks must repay their loan in full. Debt maturities are the lowest they have been in 30 years. Banks have been borrowing money with short maturities – meaning, short-term loans for banks – so because of this, they have been offering ARMs (adjustable rate mortgages) with a short-term fixed rate period with a low interest rate for 5 years or so, which then adjusts up or down to whatever the current rates are at the short-term fixed rate’s maturity date, and that is where a lot of people have been hurt, with drastically increasing rates on mortgages they were barely able to pay in the first place.

Now, this isn’t entirely the bank’s fault – people should always do their research before entering into a financial obligation. It isn’t the bank’s job to make us do the right thing for ourselves. If you’re buying a house, you should know the difference between a fixed rate mortgage (in which the interest rate stays the same for the entire length of the mortgage period) and an adjustable rate mortgage. A lot of people didn’t do their due diligence before taking on ARMs and they should have taken a fixed rate mortgage instead.

Back to the current situation: The lowest short-term debt maturity rates in 30 years. This is why even people with great credit can’t get approved for mortgages. Short-term rates for banks are expiring over the next few years and even though rates are low right now, they could skyrocket when the maturity dates expire. Banks who lend at low rates now could be stuck holding 30-year fixed-rate mortgages locked into low rates, when higher rates (expected to come in the near future) could generate more revenue for them if they wait a little longer to start approving loans again. Its good for business but its bad for those who need financing right now.

We need to inform ourselves. The more we know, the better prepared we are when we need financing.

Why is it so hard to save money? Here’s a tip to simplify saving: Treat it like a bill. Just like you have money in your bank account set up to automatically pay for your bills, do the same with saving. Set up an automatic “payment” plan to set aside $5, $10, $25, $50, or $100 every week or every month into a savings account with an automatic savings plan like ING DIRECT and your money is FDIC-insured like any other bank in the U.S.

The best part is you don’t even have to think about it. Putting $100 aside every month (or $25 every week) will get you $1,200-$1,300 plus interest by the end of a year. Imagine what you could do with more!

One of the best ways to keep on top of your finances is to set up automatic payments or online bill pay. If you have a credit card and you’re still paying each bill with a check, you may fall in the trap of forgetting a payment or not paying the amount you really should.

If you haven’t set up automatic payments for all your bills just yet, there is no better time than now. You can set the payment to automatically pay the full balance on your statement or another amount. Of course I recommend paying the full balance all the time every time, but if you can’t afford to, you can also pay an amount that is either equal to or more than the minimum. Always pay the bill in full, and if you cannot, then at least pay more than the minimum. (If this is a problem for you, you may need to read about lesson #1).

If you are afraid that setting up automatic payments will make you forget how much you owe, and then subsequently leave you with less in your bank account than you need to make that automatic payment, you should take this one step further and keep a calendar (either on your wall, in a planner, on your phone or on your computer) and keep track of the day of the month the automatic payment typically gets deducted from your bank account.

Also set yourself up with your credit card account’s email reminders for when a payment is due, or how much you owe, so each month you can prepare for the day the amount is deducted from your checking account balance. This way you can ensure there is always enough money in your bank account for payment day!

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