Wall Street Crisis Hits Main Street: 8 changes affecting your finances
Filed under: Banks, Borrowing, Credit, Investing
Politicians, economists, columnists and bloggers have offered numerous stark predictions about how the current financial crisis and government bailout will affect average Americans. But the truth is that Wall Street's crisis, which kicked off September 15 with the fall of Lehman Brothers, Merrill Lynch and AIG, is already affecting Main Street.
We list eight ways your finances are already being affected by the current financial meltdown:
Credit card limits reduced:
Even if you have a high credit score and a blemish-free payment history, your credit limit may have been cut. American Express recently cut the credit for 10% of its cardholders, but most banks have reduced credit limits for some customers since last summer. If you are making a big purchase or use your credit card for unplanned expenses, be sure to check your limit. There are big penalties for going over it.
Student loans harder to come by:
It's not just banks and mortgage lenders that are suffering. The student loan industry is in crisis. Private lenders are going under and some state agencies and large banks, including Bank of America and Wachovia, have stopped issuing student loans. Some schools are being more forgiving on payment schedules as students scramble to secure funding. Call the student aid office for help, but expect less favorable terms than prior years.
Money market mutual funds safer:
To stave off investor panic after one prominent money market fund "broke the buck," or posted a small decline in value, the government has promised it would cover any losses. Not all funds are covered in the new program, so check with your fund company if you are worried. With this added protection, money market funds are now just as safe as bank savings accounts.
More incentives to open bank accounts:
One result of the credit crisis is that banks are trying their darndest to attract more deposits. Chase is currently offering $125 (at least in New York City) to open an account with direct deposit. Citibank is beefing up its "Thank You" rewards program. Refer a friend, and Bank of America will give you both $25. Remember, low fees and high interest on savings are more important than one-time incentives when choosing a bank.
Easier to get a loan if you have good credit:
Don't forget, even in the current crisis, banks want to stay in business. So they are continuing to make loans to borrowers with with good credit records and plenty of assets. There are good deals on home equity lines of credit and businesses have found short-term loans easier to come by since the bailout talks began.
Harder to get a loan if you have weak credit:
If you have a tarnished credit history, don't expect to get a loan any time soon -- even if you're willing to pay high interest rates. Banks continue to tighten their lending standards as the credit crisis deepens. If you need to rebuild your credit score, a good way to start is by using a secured credit card (one where you have cash in a bank account to back up purchases).
More deals at stores in preparation for weak holiday spending:
With the economy slowing and family budgets tightening, retailers are anticipating a tough holiday sales season ahead. So they are layering on the deals early. Black Friday, the day after Thanksgiving when the holiday shopping season kicks off, should provide a bonanza of deals. Consumer electronics will offer particularly good buys.
Investment returns are down:
The stock market has taken it on the chin in recent weeks. But sharp sell-offs on bad news have been followed by major relief rallies a day or two later. The worst thing you can do is panic and sell at the bottom. Instead, make sure your investments are diversified and use the upswings to sell some stocks if you realize now that you've taken on more risk than you can handle.
We list eight ways your finances are already being affected by the current financial meltdown:
Credit card limits reduced:
Even if you have a high credit score and a blemish-free payment history, your credit limit may have been cut. American Express recently cut the credit for 10% of its cardholders, but most banks have reduced credit limits for some customers since last summer. If you are making a big purchase or use your credit card for unplanned expenses, be sure to check your limit. There are big penalties for going over it.
Student loans harder to come by:
It's not just banks and mortgage lenders that are suffering. The student loan industry is in crisis. Private lenders are going under and some state agencies and large banks, including Bank of America and Wachovia, have stopped issuing student loans. Some schools are being more forgiving on payment schedules as students scramble to secure funding. Call the student aid office for help, but expect less favorable terms than prior years.
Money market mutual funds safer:
To stave off investor panic after one prominent money market fund "broke the buck," or posted a small decline in value, the government has promised it would cover any losses. Not all funds are covered in the new program, so check with your fund company if you are worried. With this added protection, money market funds are now just as safe as bank savings accounts.
More incentives to open bank accounts:
One result of the credit crisis is that banks are trying their darndest to attract more deposits. Chase is currently offering $125 (at least in New York City) to open an account with direct deposit. Citibank is beefing up its "Thank You" rewards program. Refer a friend, and Bank of America will give you both $25. Remember, low fees and high interest on savings are more important than one-time incentives when choosing a bank.
Easier to get a loan if you have good credit:
Don't forget, even in the current crisis, banks want to stay in business. So they are continuing to make loans to borrowers with with good credit records and plenty of assets. There are good deals on home equity lines of credit and businesses have found short-term loans easier to come by since the bailout talks began.
Harder to get a loan if you have weak credit:
If you have a tarnished credit history, don't expect to get a loan any time soon -- even if you're willing to pay high interest rates. Banks continue to tighten their lending standards as the credit crisis deepens. If you need to rebuild your credit score, a good way to start is by using a secured credit card (one where you have cash in a bank account to back up purchases).
More deals at stores in preparation for weak holiday spending:
With the economy slowing and family budgets tightening, retailers are anticipating a tough holiday sales season ahead. So they are layering on the deals early. Black Friday, the day after Thanksgiving when the holiday shopping season kicks off, should provide a bonanza of deals. Consumer electronics will offer particularly good buys.
Investment returns are down:
The stock market has taken it on the chin in recent weeks. But sharp sell-offs on bad news have been followed by major relief rallies a day or two later. The worst thing you can do is panic and sell at the bottom. Instead, make sure your investments are diversified and use the upswings to sell some stocks if you realize now that you've taken on more risk than you can handle.
Reader Comments (Page 1 of 2)
9-29-2008 @ 6:31AM
diTesco said...
So in essence and as they say, something good can always be taken out of a bad situation. For people who has good credit history, the fact that banks want to stay in business, is positive as one can even negotiate terms a little better. The bad news is that the banks will probably increase their interest rates as it will be less likely they will loan people with bad credit history. They will have to compensate it some other way.
If you decide to open accounts with rewards, remember banks don't give money away, read the fine lines carefully.
If you don't have any stocks, maybe now is the time to look for some real bargains. There are a lot of companies that got hammered due to the "domino" effect. There are some good ones, and if you think carefully, you might just come to the conclusion that it is safe, because after all, the FED and the Government is there to bail you out:)
Great post you guys.
http://www.iblogzone.com
Reply
9-29-2008 @ 8:04AM
Lazaro Sopena said...
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9-29-2008 @ 8:55AM
Richard J. said...
Wachovia and credit card limits.
CONTRARY to your article: To help my employee of four years establish his own credit, I co-signed with him on a credit card, but restricted the limit to $2,500.00. For over a year, he has always paid on time, but the bank would not issue him a card in his own name.
When I investigated further, the bank, on its own, had increased the limit to $11,500.00! Dumb, just plain dumb. I asked to see the paperwork, and they said they did not have it. He now owes $3,600.00. I got his card, returned it to the bank, and closed the credit card.
In my opinion, Wachovia was just adding to the problem, not to solution.
Reply
9-29-2008 @ 9:24AM
Peyton Johnson said...
They can offer some positive items for the people, but in real terms, the banks and wall street are the true winners. The federal reserve should be eliminated by congress execising the 1913 buy back contract and this will eliminate 99% of this problem and all future financial probelms, go back to strict regulation that worked for 150 years. Maybe that would get rid of most corruption i n washington, the banks and large corporations and by eliminating the federal reserve, the federal debt would be wiped out. This no good USA government we have had in place for the past 60 years have done nothing but create debt, verus prudent spending within the annual budget, so the next move for the people is get rid of the old guard and start over with some honest congress and senate members. We just can't afford any more of these low life out of control spenders.
Reply
9-29-2008 @ 9:52AM
Peyton Johnson said...
Speaking of banks, Chase Bank in Monore, La. has been offering bank loans to college students with no job and any means for a repayment plan. First hand information is, my grandson going to La. Tech University has a credit card at the Chase bank and based on his low credit card payment, Chase has been sending him leters stating that he has been pre-approved for a $200,000.00 thousand home loan. This young man goes to school, has never had a job that would even come close to paying a debt fo a $200,000.00 home loan. I wrote a letter to Chase bank, the federal banking commission, had no response from either indicating any concern about loaning large amounts of money to a college student with no means for re-payment of a loan. By the way, Grand Daddy ( thats me ) provides all funds for the cost of college and pays off his credit card debt each month. Granted, this is just a tiny part of the financial problem, but when you add it up on a national basis, then the billions start to add up and thats when the people realize just how stupid the banking industry and wall street have been.
Reply
9-29-2008 @ 10:43AM
bob paglee, sr. said...
There's a variation on Sec. Paulsen's plan that would present less risk to taxpayers and more opportunity for recovery of bank capital. Auctioning off illiquid assets when their value is unknown will bring very low bids in the proposed reverse auctions. This may lead to losses for taxpayers and unnecessary destruction of bank capital.
Alternatively, banks should be offered an opportunity to deliver securities of unknown value to the Treasury at a very low set price (say, 10% of face value) in exchange for immediate cash to bolster their balance sheets, but also be issued an option to buy back those same securities at the original sale price plus interest, less any accrued return of mortgage principal to be retained by the U.S. Treasury. The option period should extend for, say, 5 years to allow time for the current crisis to subside and for approaching maturities to permit much better price evaluations than during distress auction sales.
If the initial price is set at 10% of face value, the maximum risk to taxpayers is $100 Bllion for $1.0 Trillion of securities purchased; at 20% of face value, the maximum taxpayer exposure would be $200 Billion.
However, the securities would likely eventually be found to have values significantly greater than such minimal valuations originally set, and most would be repurchased by the original owners upon exercise of the buyback options. There could even be a secondary market for sale buyback options and this could accelerate the buybacks. Upon termination of the 5-year buyback option period, any residual securities could be auctioned by the Treasury for the benefit of taxpayers.
This alternative would avoid a semi-nationalization of our banking system, provide a sounder one with a greater recovery of assets, and remove the temptation to impose socialist calls for taxpayer profits in the form of bank equity or options.
Reply
9-29-2008 @ 10:11AM
Doug Anisky said...
The real positive outcome can be found in the realestate market.Whether your one of the few people that still have a good credit score and just want to buy the vacation home on the water that you have always dreamed of , or if your a larger cash buyer( neven better) you can take advantage of one of the many fractured condo conversion projects we have available.Eveyone one the 13 builders we work directly with here in Fl. are looking to make deals at 30% to 60% on the dollar! Email apwarrior1@aol.com !
Reply
9-29-2008 @ 10:34AM
diTesco said...
One other thing I wish to add. I don't work for a bank and so I do not need to defend the system. However, there is one thing that is very clear and yet a lot of people seem to forget that banks or any other financial institution "sell money" for profit. This is their product and what they do. Now if some bank offers me something, I have a choice of either accepting it or not. I do know that banks should be more prudent when making offers, in particular to people who does not have the means to pay. But what exactly does that mean? It is really relative. Say I have a nice idea for business and absolutely no money to finance myself. If you were a bank, what would you do...
Reply
9-29-2008 @ 1:05PM
mike m said...
Reduce my credit limit with no blemishes on my record, dumb move. Maybe I should move my accounts elsewhere, where banks are not so deep in bed with greed. They're the one who made questionable loans. Go ahead I dare you!
Reply
9-29-2008 @ 1:24PM
bgrue said...
Juliesaltor: thanks for the http://www.Cityskoop.com heads up. Great sales on there. Just followed a link to Best Buy so I could buy a new digital camera.
Reply
9-29-2008 @ 2:35PM
Tom said...
When we, the litrtle people wake up and realize that all of the problems today are caused by ALL of the politicians in Washington. Not just the President, Senators, Congresspeople, Republicans or Democrats. It is all of them and the Democratic system here in the US is broke.
I suggest the only way to change this is to vote all of the long termers in office out. Get new committed to the people representatives in there with term limits and take back Washington. The alternative is a revolution and that is not far fetched.
Reply
9-29-2008 @ 4:30PM
Lyle said...
I think the course of action would be to draw out ALL of your savings and bury it in the back yard - this country and it's Financial Institutions have proven that they cannot be trusted, the next thing the Government will spring upon us is that the FDIC is not solvent and that it could only pay 10 cents on a dollar if (& when) the Banking Industry has a large scale failure
Reply
9-30-2008 @ 9:19AM
annie said...
Vote no on the bail out.
Send EACH US citizen and possibly legal alien 18 years and older (regardless of income level) $250,000 each...let us pay taxes on that money (so the government gets some money back) and then let us spend it...we can pay off our loans, credit card debt, pay for college, invest it, buy cars...and invigorate the economy and create jobs.
Reply
9-29-2008 @ 9:42PM
Ron said...
I say let them sink...if the average tax payer lost his job or mismanaged his money the government would NEVER write them a blank check so they could turn around and do the same thing. We need to hold these investors accountable for over inflating the values of these morgages and then not working with the home owners to allow them to keep their home. Theses so called investors have made billions at the expence of everyone. Let the stock market fall also, just a bunch of speculators looking to make a buck at everyones expence. If you dont think so,,just look what they can do to the price of oil !!
Reply
9-30-2008 @ 11:30AM
Black Friday Lover said...
Where I live, TCF bank is always offering an incentive to sign up for a bank account. At one point, they were giving away iPods. I just singed up and got a $50 gift card for Cub Foods.
The whole credit thing doesn't directly effect me, as I don't have nor wish to have a credit card.
Stores BETTER have amazing deals if they want to sell anything this holiday season. The ads for Black Friday were most likely printed months ago, before the economy really went downhill, so there will probably be "secret sales" and better online deals this year, at least I hope. I don't see retailers making up entirely new ads with even lower prices than planned because of the most recent economic woes. You never know, though...
People are already saving every penny they can, so I'm sure Christmas gifts are not top priority.
I myself will use Black Friday as an opportunity to get things I need, like clothes, etc. Presents are just not important with the way things are. I will still shop, but with a tighter budget!
http://shopblackfriday2008.googlepages.com/
Reply
10-07-2008 @ 11:34PM
Lee said...
Whether you have a credit card or not, isn't the issue. You will still be affected in many ways by this situation. Any taxes that you and the rest of the american people are required to pay, will be how the "Feds" will pay for this "bailout."
10-03-2008 @ 11:19PM
Neva Wise said...
Subject: 7 1/2 YEARS OF GEORGE BUSH
>> >
>> > TO ALL MY FRIENDS....LIBERAL OR CONSERVATIVE...FYI only.
>> > George Bush has been in office for 7 1/2 years. The first six the economy
>> > was fine.
>> >
>> > A little over one year ago:
>> > 1) Consumer confidence stood at a 2 1/2 year high;
>> > 2) Regular gasoline sold for $2.19 a gallon;
>> > 3) the unemployment rate was 4.5%.
>> > 4) the DOW JONES hit a record high--14,000 +
>> > 5) American's were buying new cars,taking cruises, vacations
>> > overseas, living large!...
>> >
>> > But American's wanted 'CHANGE'! So, in 2006 they voted in a Democratic
>> > Congress and yes--we got 'CHANGE' all right. In the PAST YEAR:
>> >
>> > 1) Consumer confidence has plummeted;
>> > 2) Gasoline is now over $4 a gallon & climbing!;
>> > 3) Unemployment is up to 5.5% (a 10% increase);
>> > 4) Americans have seen their home equity drop by $12 TRILLION
>> > DOLLARS and prices still dropping;
>> > 5) 1% of American homes are in foreclosure.
>> > 6) as I write, THE DOW is probing another low~~
>> > $2.5 TRILLION DOLLARS HAS EVAPORATED FROM THEIR STOCKS,
>> > BONDS & MUTUAL FUNDS INVESTMENT PORTFOLIOS!
>> >
>> > YES, IN 2006 AMERICA VOTED FOR CHANGE...AND WE SURE GOT IT! ....
>> >
>> > REMEMBER THE PRESIDENT HAS NO CONTROL OVER ANY OF THESE ISSUES, ONLY
>> > CONGRESS.
>> >
>> > AND WHAT HAS CONGRESS DONE IN THE LAST TWO YEARS, ABSOLUTELY NOTHING.
>> >
>> > NOW THE DEMOCRATIC CANDIDATE FOR PRESIDENT CLAIMS HE IS GOING TO REALLY GIVE
>> > US CHANGE ALONG WITH A DEMOCRATIC CONGRESS!!!!
>> >
>> > JUST HOW MUCH MORE 'CHANGE' DO YOU THINK YOU CAN STAND?
Reply
9-30-2008 @ 9:44PM
G Wijtermute said...
I didn't one comment about you savings for retirement. I did see one comment about your pension payments being reduced. My pension is 100% related to the investment of stocks market securities. Just maybe 82 olds are not computer trained and that is probably the reason why there is no interest in pensions.
Reply
9-30-2008 @ 10:22PM
Harry Hurt said...
Harry Truman once said "Financial control is in the hands of too few." Could he have been right?
Reply
10-02-2008 @ 9:23PM
Kenneth Jones said...
I am absolutely INCENSED that the people at the core of Wall Street's financial woes have received so many breaks in the form of Golden Parachutes to the tune of millions of dollars, while the average American on Main Street is going to suffer financially! For instance, how in the world is ANYONE going to be able to open a bank account if he or she can't find a JOB?
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