in Search

Money Coach

February 2007 - Posts

  • An Economic Tipping Point?

    "Tipping Point -- The moment where critical mass, the threshold, and the boiling point converge. It is the point when everyday things reach epidemic proportions."

    Some time after his arrival in the Philippines to begin production on Apocalypse Now, Francis Ford Coppola was warned by a crew member that seasonal typhoons would destroy the sets that were being constructed. "What are you," Coppola replied, "a f---in' weatherman?"

    It wasn’t like the crew member was alone. Even before leaving America, Coppola had been warned not to go by veteran director Roger Corman. "You're going right into the rainy season," Corman warned. "Nobody goes there that time of year."

    Coppola ignored continued admonishments from locals that heavy monsoon rains were imminent and set about his business of making the movie. But a few weeks later. Much of Coppola's set was destroyed by a violent tropical storm.

    Of course, the fabled director did survive the weather and went on to make one of the groundbreaking movies of our time. But he paid a heavy price. He nearly suffered financial ruin, as the film went far over budget and way over schedule (primarily due to the nasty weather and the ill health of one his stars, Martin Sheen, who suffered a heart attack while filming). Coppola himself said he just about suffered a nervous breakdown

    To this day, in numerous interviews, Coppola rues the decision to film in the Philippines, near the Pagjansan River at the height of the tropical storm season.

    But at least he survived.

    Can we say the same?

    The answer to that question will decide whether you spend the bulk of your remaining years toiling at a fast-food drive-thru window for a living or living in relative comfort with your loved ones safe and secure.

    A stark contrast? No doubt about it. But a realistic one.

    That’s because there’s an economic storm cloud brewing on the horizon; one that could sink millions of middle class Americans into poverty and the US economy into financial chaos. Unfortunately, few Americans are aware of the train wreck ahead.

    The fact is, we’ve reached an economic tipping point in the U.S. today.

    It’s a point that leads to economic disaster for America and its citizens; a collapse of catastrophic proportions that just might reduce the U.S. to a level of chaos, poverty and deprivation that Americans are woefully unprepared for. It could be a period of tremendous hardship and economic deprivation.

    Imagine an almost instant depression seizing the entire modern industrialized world as nation-states break down. Americans, even relatively wealthy ones, frantically struggling with crippling tax increases; slashed retirement benefits; gutted budgets for homeland security; highways, research and everything else. But most of all, imagine an economic decline and financial collapse that devastates the middle class, as happened recently in debt-strapped Argentina. There, upper-middle class Argentineans were plunged into poverty after the country’s economy and currency collapsed. Many went homeless, many lost their jobs, and many have yet to recover from Argentina’s economic catastrophe – the same type of catastrophe that threatens the US today.

    Imagine cash-strapped banks calling in all their outstanding loans to stay afloat. That would force millions of American homeowners to pay the entire outstanding balance on home mortgage in a period of three months or less. The same story will occur with credit card companies – they’ll be demanding full and immediate payment from card carriers; most of who won’t be able to pay off their debt in a single payment. Basically, any American who has undertaken significant debt will most likely lose everything.

    Sound unlikely? Hardly.

    During my years as a professional investor and financial book author I have witnessed a perfect storm quickly gathering strength on our nation’s economic horizon, fueled by staggering federal debt. Furthering this problem, our Baby Boom generation continues to collect Medicare, Medicaid and Social Security. Together these stipend comprise almost 50% of the U.S. economy (military spending, by comparison, accounts for just 7%) and cost taxpayers $1.69 billion per day. As I will explain in detail in the next few blogs, other factors contributing to the gathering storm are:

    -- a devalued dollar, which is fueling the current run-up in rising energy and health care prices

    -- growing imbalances in the U.S. economy

    -- lack of domestic savings on the part of Americans

    -- and the erosion of the U.S. industrial base

    These trends weave like vines throughout our financial culture, clinging to our economy and threatening to strangle our status as the world’s largest superpower. No longer singular forces, these trends speckle the economic landscape like a plague, creating a toxic economic stew that will lead to a significantly lower standard of living for debt-ravaged Americans and a wobbly stock market that could sink by 50 to 75 percent in value in the next ten years. Fanning the flames further is complete paralysis on the part of the Federal Reserve, Congress, and the President. For reasons of political expedience, these government bodies are likely to delay addressing such the current hazardous economic trends.

    Worse, I am convinced that the tactics they ultimately do utilize will intensify the problem, making the inevitable recession that much worse. The outcome, of hyper-inflationary proportions, would render the U.S. dollar practically worthless in terms of real purchasing power. This crash could potentially lead to an extreme financial, political, and social unrest.

    Then there is the global competition factor – a trend that doesn’t bode well for Americans. Over the past few decades the US has become a consumer-based sociological and economic culture that relies increasingly on the products manufactured by other countries, most notably along the Pacific Rim. Countries like China and India are burgeoning into the world’s greatest producers of goods, leaving America and its increasingly quaint service economy in the dust.

    Bundled together, these effects will culminate in a substantial decline in the overall American standard of living by 2010, resulting in the greatest financial collapse in history.

    Posted Feb 26 2007, 07:29 PM by moneycoach with no comments
    Add to Bloglines Add to Del.icio.us Add to digg Add to Facebook Add to Google Bookmarks Add to Newsvine Add to reddit Add to Stumble Upon Add to Shoutwire Add to Squidoo Add to Technorati Add to Yahoo My Web
  • What is "Essential" Debt?


    As I’ve mentioned, not all debt is created equal.

    Okay, so it’s not Thomas Jefferson, but humor me for a moment.

    Some debt has more impact on your life than others. Those are the debts you need to square away first. Let’s call that “essential” debt.

    Then there is the debt that, while serious, doesn’t rise to the level of critical mass – the kind of debt that, if not handled properly, can cause your financial life to implode. Let’s call that non-essential debt.

    Obviously, essential debt is a priority and should be paid off first.

    Examples of essential debt are your rent or mortgage debt. If you don’t pay that debt, you lose your home. I’d call that essential.

    Then there is your utility bill; your electricity, your heat, your water or phone services. The loss of any one of them could lead to a life-threatening situation. (ex: you’re house is on fire but you have no phone to call #911.)

    Child support is another essential. True, not too many post-collegiate Americans face child support but if you do, you’ve got to pay it first. A judge could haul you off to jail if you don’t. Car payments, too, might be considered essential debt, especially if you need to travel a significant distance to your job.

    Then there is non-essential debt.

    Non-essential debt includes your credit card and student loan bills. Yes, I know. I’ve spent the better part of these blogs so far making my case for the importance of paying off your student loan debt, and, to a lesser extent, your credit card debt.

    But let’s face facts. If you miss a student loan payment or two, or four or five, for that matter, your life isn’t placed in jeopardy as it might be if you lose your home or utilities because you neglected those debts.

    Still, while your student loan debt isn’t at the “essential” level of your home or utility debt, it could be if you ignore it long enough. Yes, you can skate a while on your student loan debt without significant consequence. But let it go too long and you’ll fund creditors banging on your door and the IRS looking to garnish your wages. Then your student loan becomes “essential debt” faster than you can say “poor house”.

    Posted Feb 13 2007, 02:21 AM by moneycoach with no comments
    Add to Bloglines Add to Del.icio.us Add to digg Add to Facebook Add to Google Bookmarks Add to Newsvine Add to reddit Add to Stumble Upon Add to Shoutwire Add to Squidoo Add to Technorati Add to Yahoo My Web
  • Student Loans: Debt Repayment Strategies

    There are two schools of thought on debt repayment strategies.

    Some call the notion of debt management an “art”. Others call it a “science”.

    After five years as a trader on Wall Street and after ten years of writing about personal finance, I’d call it a mindset.

    You really have to be a pragmatist to tackle debt. It’s a thankless, no-glamour task, akin to cleaning the gutters or undergoing root canal. Burdensome responsibilities, yes. But necessary ones, too.

    Like most matters in life, you have to set the table before you can eat. You have to lay the foundation and build a house before you can live in it and enjoy it.

    Same with retiring your student loan debt. It’s dirty work that, once finished, enables you to go on and enjoy the byproducts of that debt retirement – more money, less worries, and a sparking credit rating that will enable you to buy that dream home or open that coffee shop downtown that you’ve always dreamed about.

    Those – and not your student loan debt – are the things that make life fulfilling. But you can’t get to those fulfilling life goals without clearing that debt away first.

    So imagine your mindset when you graduate from college, enjoy the accolades from your friends and family, and look forward to embark on the rest of your life, diploma in hand and wind at your back.

    That euphoria exists only long enough until you get that first student loan statement in the mail – the one with the eye-popping $25,000 figure on it staring back at you from the bottom of your statement.

    Calgon, take me away, right?

    Well, if you don’t adopt that “can do” mindset I referred to above, your student loan debt can become a student loan problem faster than you can say, “Ah, I’ll pay it next month”.

    That’s why planning your loan repayment schedule around an overall financial plan is so important. In previous blogs, we touched upon the importance of managing credit card debt and establishing a budget. But you also have to figure out how to channel that aggressive, bulldog mindset that I described above into taking control over your financial life and carving out a strategy for paying your student loan debt.

    Let’s tackle that issue right now.

    The Cost of High Debt

    When you’re talking about tackling your student loans, you’re really talking about avoiding lifestyle-crippling debt.

    One of my favorite movies is “Apollo 13” with Tom Hanks. Kevin Bacon, and Ed Harris. Fine actors, all. But it’s Harris who has the best line in the film. Faced with a potential catastrophe up in space with a banged-up space capsule that might not survive re-entry into the earth’s atmosphere. Harris – as the NASA commander – is the guy who has to solve the problem and bring the astronauts’ home safely. Turning to his team, Harris gives them there marching orders and says point-blank “remember, failure is not an option”.

    Failure is not an option.

    What a great concept for addressing your student loan debt.

    Why? Because the price for failing to pay off your student loan debt in a timely manner is a stiff one.

    Let’s look at reality. The more student loan debt you accumulate (and don’t pay off) the tinier the mortgage you’re likely to get when you buy a home. Or, the smaller the loan you’ll get to buy a new car. Or how about your career? Many companies now rely on credit reports to hone in on your character when you're applying for a job. If they see a heavy debt load, that’s a big red flag. Hiring managers reason that if you're not reliable enough to pay your debts, you’re not reliable enough to come work for them.

    Face it. Debt gets expensive after a failed student loan payment effort and the ensuing nasty credit rating you’ll get. That will impact everything that happens to you financially in life, from having to buy a smaller home – or heaven forbid, have to rent one because you don’t qualify for a mortgage – to the amount of money you’ll be able top put away for retirement. It won’t be as much if you face a mountain of loan debt, meaning you could be spending your golden years working under the Golden Arches to make ends meet.

    Posted Feb 06 2007, 09:30 PM by moneycoach with no comments
    Add to Bloglines Add to Del.icio.us Add to digg Add to Facebook Add to Google Bookmarks Add to Newsvine Add to reddit Add to Stumble Upon Add to Shoutwire Add to Squidoo Add to Technorati Add to Yahoo My Web
  • Loan Snapshot: Repayment Tips

    Like most things in life, think before you sign on the dotted line.

    For example, you can pay your loan off sooner if you add $10 or $20 per monthly payment. You’ll hardly miss the money but you can shave months, if not a year or two, off your loan schedule by doing so.

    More Tips on Student Loan Payments


    Let’s talk about some more tips on repaying your student loans. All are designed to help you get to the Holy Grail of student loan debt -- the day you make your last student loan payment.

    Don’t wait for a bill to come from your lender every month. Go ahead and send a check regardless of whether you received a bill or not. It’s habit forming and therapeutic, in the sense that you’re cutting your debt down to size. People who wait for the bill to come are taking, in my opinion, a passive approach to student loan debt. But taking charge and cutting a check no matter what, you’re taking command over your own fiscal situation. And that’s a habit that will pay off over the course of your lifetime.

    Know all of your repayment options from your lender. Make sure that the repayment option fits your current financial situation. If you’re flush with cash, go ahead and pay more than you owe. If not, work with your lender to accommodate a financial dry spell with a different loan repayment plan. Like anything else, when it comes to debt, knowledge is power.

    Keep your lender in the loop. If you move, get married, or even change your phone number, let your lender know. Direct contact is the easiest and best way to solve any problems that arise. But you have to know who to reach. And the lender has to know how to reach you.

    If you’re planning on going straight to graduate school, but don’t have the money to pay the bills, try taking a year or two off and go into the corporate world to earn some money. After that, you’ll have earned enough to defray any further student loan costs. Bonus: by taking time off between schools and spending some time working for a living, you’ll gain a greater appreciation of what you want to do with your life – and what you might want to study when you return to grad school.

    If you do attend graduate school, request a deferment from your lender from any undergraduate student loans. As long as you are in grad school, you won’t be receiving any bills for your student loan from your undergraduate days. But work closely with your lender to make sure you have all the proper paperwork filed to gain that deferment. Note that it’s much easier to defer government loans than it is private loans. Again, if you are in graduate school at least try to make interest payments on your undergraduate student loan. That will defray the total cost of the loan and help you develop good repayment habits.

    Use Gift Money. Remember the scene in The Graduate where people come up to Dustin Hoffman and offer congratulations and encouragement for his graduating from college? Look closely and you’ll notice them giving him an envelope or two in the process, containing a hefty check, no doubt. If you are similarly rewarded with a bonus from relatives and friends for graduation – or received a signing bonus to work for a firm right out college, use it to prepay off your student loan.

    Put some of these ideas to work and see if that day doesn’t come sooner than you think.


    Posted Feb 02 2007, 01:07 PM by moneycoach with no comments
    Add to Bloglines Add to Del.icio.us Add to digg Add to Facebook Add to Google Bookmarks Add to Newsvine Add to reddit Add to Stumble Upon Add to Shoutwire Add to Squidoo Add to Technorati Add to Yahoo My Web
  • Loan Snapshot: Repayment Tips

    Like most things in life, think before you sign on the dotted line.

    For example, you can pay your loan off sooner if you add $10 or $20 per monthly payment. You’ll hardly miss the money but you can shave months, if not a year or two, off your loan schedule by doing so.

    More Tips on Student Loan Payments


    Let’s talk about some more tips on repaying your student loans. All are designed to help you get to the Holy Grail of student loan debt -- the day you make your last student loan payment.

    Don’t wait for a bill to come from your lender every month. Go ahead and send a check regardless of whether you received a bill or not. It’s habit forming and therapeutic, in the sense that you’re cutting your debt down to size. People who wait for the bill to come are taking, in my opinion, a passive approach to student loan debt. But taking charge and cutting a check no matter what, you’re taking command over your own fiscal situation. And that’s a habit that will pay off over the course of your lifetime.

    Know all of your repayment options from your lender. Make sure that the repayment option fits your current financial situation. If you’re flush with cash, go ahead and pay more than you owe. If not, work with your lender to accommodate a financial dry spell with a different loan repayment plan. Like anything else, when it comes to debt, knowledge is power.

    Keep your lender in the loop. If you move, get married, or even change your phone number, let your lender know. Direct contact is the easiest and best way to solve any problems that arise. But you have to know who to reach. And the lender has to know how to reach you.

    If you’re planning on going straight to graduate school, but don’t have the money to pay the bills, try taking a year or two off and go into the corporate world to earn some money. After that, you’ll have earned enough to defray any further student loan costs. Bonus: by taking time off between schools and spending some time working for a living, you’ll gain a greater appreciation of what you want to do with your life – and what you might want to study when you return to grad school.

    If you do attend graduate school, request a deferment from your lender from any undergraduate student loans. As long as you are in grad school, you won’t be receiving any bills for your student loan from your undergraduate days. But work closely with your lender to make sure you have all the proper paperwork filed to gain that deferment. Note that it’s much easier to defer government loans than it is private loans. Again, if you are in graduate school at least try to make interest payments on your undergraduate student loan. That will defray the total cost of the loan and help you develop good repayment habits.

    Use Gift Money. Remember the scene in The Graduate where people come up to Dustin Hoffman and offer congratulations and encouragement for his graduating from college? Look closely and you’ll notice them giving him an envelope or two in the process, containing a hefty check, no doubt. If you are similarly rewarded with a bonus from relatives and friends for graduation – or received a signing bonus to work for a firm right out college, use it to prepay off your student loan.

    Put some of these ideas to work and see if that day doesn’t come sooner than you think.


    Posted Feb 02 2007, 01:07 PM by moneycoach with no comments
    Add to Bloglines Add to Del.icio.us Add to digg Add to Facebook Add to Google Bookmarks Add to Newsvine Add to reddit Add to Stumble Upon Add to Shoutwire Add to Squidoo Add to Technorati Add to Yahoo My Web
  • More on Loan Repayment Options

    Remember, not every lender treats income loan repayment the same. Under federal direct Stafford or consolidation loan, you are usually eligible for an income-based repayment plan. PLUS loans, however, are not eligible. The amount you pay annually on income-based loans differs, but it will never exceed 20% of your discretionary income -- that is, your annual gross income less an amount based on the poverty level for your household size.

    Additional Repayment Options

    The repayment express doesn’t stop there. There are plenty of other ways to pay your bill and shed that student loan albatross from your shoulders. Check these out and see if there’s a place for one or two in your student loan repayment plan.

    Pre-Paying – There’s an old saying in the financial world that “there’s no rule that says you have to spend any raise you get at work”.

    Similarly there’s no rule that says you can’t pay your long off before its full amount is due.

    Both proverbs, as it were, are spot on in the sense that financial benefits come to those who think creatively. Remember, the longer it takes to pay your student loan debt, the more interest you’ll pay. You can’t do much about the amount of money you borrowed – the principal – but you can do something about the bank account-sapping interest you pay on your loan. By paying it off early, you kill those onerous interest payments. In the process you’re taking money that could have gone to the bank off the able and putting it back where it belongs. In your pocket.



    Loan Snapshots: “On Time” Payments




    Paying on time and regularly has hidden benefits, too. Some lenders reward regular on-time payments with interest rate reductions. That could save you thousands of dollars over the life of your loan.
    -----------------------------------------------------------------------------------------------------------

    Bank Deductions

    There is no shortage of lending institutions that enable you to make student loan payments automatically from your bank account. Besides being convenient, automatic bank transfers help you maintain a good credit rating by ensuring on-time payments. Some lenders may even offer a decrease in the interest rate on your student loans just by going for the automatic deduction.

    -----------------------------------------------------------------------------------------------------

    Loan Snapshots: Schedule Your Payments

    You can tailor, with minimal effort, the monthly date you receive your student loan bill. For instance, if you are paid monthly on the 30th, you can ask your lender to send your bill on the first of the month. That way you should have enough on hand to pay your loan bill.

    Posted Feb 01 2007, 11:38 PM by moneycoach with no comments
    Add to Bloglines Add to Del.icio.us Add to digg Add to Facebook Add to Google Bookmarks Add to Newsvine Add to reddit Add to Stumble Upon Add to Shoutwire Add to Squidoo Add to Technorati Add to Yahoo My Web

This Blog

Syndication