Or, it could be that they just can’t get any credit. With the credit market freeze, it’s actually getting increasingly difficult to borrow. The banks are wary of lending. Turns out lending to anyone hasn’t been working out all that well. As a result, though, even people with good credit are having a hard time getting credit or loans.

Credit limits are dropping

Another personal finance issue emerging from the current economic crisis is the fact that credit limits are actually dropping. Over at Gail’s Blog, I read this interesting tidbit:

Of the 20% of American Express clients who saw their limits reviewed as a part of normal operating procedure, FIFTY PERCENT saw their limits go DOWN. That means that to maintain a healthy credit ratio (remember, no more than 60% of you limit should be used) a lot of people are going to have to find the money somewhere, or reconcile themselves to watching their scores plunge. Someone with a $2,500 balance on a card with a $5,000 limit is using 50% of their credit line. But if that limit drops to $2,500, they’re now using 100% of their available credit, which is the biggest of no-nos.

You can see how this is a Big Problem. Not just from the standpoint of having debt (because, really, perhaps it means that we’ll start changing the way we do things), but from a credit score standpoint.

If you have been somewhat responsible and have been trying to get out of debt and fix your credit, this is a big step backward for some people. It means that now — in terms of credit — you have to essentially start from pretty close to scratch because your score is going to drop.

Another area of credit getting hit: The HELOC. If you have a HELOC, be aware that your limit might be decreasing, or that an outright freeze may be placed on it. Be watching the mail for that letter…

image credit: sxc.hu

Post from: EveryJoe

Rate of Borrowing Decreases — Along with Credit Lines

This was the first time I heard someone state this truth so baldly. But what has me worried is that now we’re treating this as something that’s no big deal. We *need* credit — and by extension we *need* debt so that we can keep the economy going.

Well, when tough economic times loom, if you want your personal finances to survive a recession, you actually need to do your best to get out of debt. Now is not the time to rack up the credit card bills. Debt make you vulnerable to economic downcycles and we are in one right now.

The basics of getting out of debt

I submit that it is time to practice some solid personal finances basics and remember the three rules of getting out of debt:

1. Cut back on your expenses (making a budget can help).
2. Make a debt reduction plan (a lot of people like the debt snowball).
3. Do not add more debt to your personal finances.

While now may not be the time that you can aggressively pay down your debt, it is the perfect time to follow rules 1 and 3.

Post from: EveryJoe

Get Out of Debt: Back to Basics

If you want more money, for example, do what it takes to find a better way to earn it (get training so you can get a promotion, or start a home business, etc.). You also need to take responsibility for what you do with that money. Where are you putting it? Are you using it to get out of debt and fund retirement? Do you have an investment plan? These are things you can take control of, even if events out of your control seem to conspire against you.

Last year, I got burned. I worked for someone who had a less than desirable character, but kept with him because the payment kept coming, despite a warning that he was behind in payments to others. One month came. I did work. I wasn’t paid after two weeks, as was the arrangement. I contacted him. Three days later he assured me payment was on the way, and to keep going. After two more weeks (and an entire month of work!) I finally quit. I never got the $3,000 he owed me.

Rather than sitting around railing that this was his fault (even though it was), I took responsibility for my situation moving forward. I could try to collect from him, but the time and energy, and the expense, could be better leveraged into more productive work. So I consider that a $3,000 lesson. I should have quit when the red flags started going up, or worked out an arrangement where at least some of my compensation was paid before the work was done. I am applying these lessons now as I go forward.

Logan Flatt, CFA makes an important point in his current series dealing with pulling ahead financially:

Presumably, financially free is what you want to be. If true, know that the road to financial freedom can be rough because you will stumble across many personal truths along the way. Buckle up – you will make it down that road much faster as soon as you actively refuse to allow anyone else to take responsibility for creating your life.

By accepting the truth that you are ultimately responsible for improving your personal financial situation, you can start making a plan — and start yielding wealth.

Post from: EveryJoe

Are You Taking Responsibility for Your Personal Financial Situation?