You know what they're doing. They're increasing their credit card balances at a rate
again that we've never seen before. It's worse, worse than we've ever seen.
So the younger generation, the entire population, really hasn't gotten the message.
We continue to spend money. It's starting to cool off a little bit,
but the under thirty crowd, man, they just refuse to change their
behavior. You are listening to Carrie Lutz's Financial Survival Network, where you get
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You need the Financial Survival Network now more than ever. Go to Financial
Survivalnetwork dot com and get your free newsletter and gift. Financial Survival Network now
more than ever, And welcome you are listening to and watching the Financial Survival
Network. I'm your host, Carrie Lutz. Well, hey, inflation,
it's kind of like death taxes. Inflation is always with us. It's just
that sometimes it's more noticeable than others. Like right now, how many of
you are feeling the pinch the higher prices and the gas pump at the supermarket
when you get your mortgage statement. If you had to buy a house after
rates started going up, you're feeling it, and you're feeling it really big.
And our good friend Paul Ouster is here from a better qualified dot com.
Paul A. Inflation's bad, but if you don't have good credit,
now it's even worse, isn't it. Yeah, So you just hit the
nail directly on the head, because it's not just interest rates, right,
insurance premiums, so homeowners insurance, your property in shorts, your auto insurance,
those things are all directly tied. Property and casualty directly tied to your
credit score. And we'll call it a credit score there. It's alden in
short score, but it's based upon the same information that's used to determine your
mortgage interest rate. So the cost of owning a home, uh, and
it varies when you start to look at everything. But the cost you know,
for goods and services have have risen so dramatically and so quickly that it's
it's become cost prohibitive, especially for the younger population to even purchase a hole.
So that's why there's literally, you know, the real estate market is
so stagnant. We've never seen anything like this again in our in our brief
history here, because we've never had the perfect storm that we have right now.
So it's not just the interest rates, it's it's it's everything else.
Okay, you know we joked about it when when it first came out,
But the dollar store is no longer a dollar store. It's a dollar ish
store out of business. Didn't they you go out? Because they can't say
people didn't want to pay more than a buck. Yeah, well so we'll
see, we'll see what ultimately happens happens there. But look at the fast
food chains, right they're all trying to play catchup and say, well,
we better go back to the two dollars menu, the five dollar menu,
because they were all I don't want to say they were price gouging, but
they were pushing the envelope during COVID, during the free money pandemic, nor
are the really good times here. Retailers were pushing the envelope to see how
much they could actually charge will what would the market bear, you know,
for a fast food hamburger, And they found that consumers were willing to spend
a tremendous amount of money relatively speaking to what they were doing before COVID.
Look at all the delivery services, the convenience services, Door Dash, Uber
Eats. You know, if you order something through those services, you're paying
ten twenty percent set more than what you would if you drove, you know,
to the fast food chap. So all of those things combined. Now
now the retailers are also getting hit. You know, they get hit with
the cost of goods and services. All of their production costs are through the
roof. So now they're trying to figure out a way to play ketchup and
go back to the consumer and say, hey, Carrie, we're sorry,
we were you know, we put the hammer down on it for the past
couple of years. Come back to us and we'll start to give you some
discounts. Hey, you know, I saw a shocking statistic ball fast food.
I'm not a fan of it, but you know, on occasion,
that's all there is. It's up seventy two percent like in the last three
years. Man, that's way worse than any other stated inflation other than energy,
which three years ago, three and a half years ago is a buck
eighty a gallon. Now it's in the flours. I mean, man,
how does it's enough to make you want to cook food at home? Isn't
it? Well? It should be. But unfortunately, again what you're saying
right now is spot on, you would think, and again, especially this
younger generation, let's say, folks that are under the age of thirty,
it's like they haven't got the message. They haven't changed their behavior. You
know, what they're doing. They're increasing their credit card balance is at a
rate again that we've never seen before. It's worse, you know, worse
than we've ever seen. So the younger generation, the entire population, really
hasn't gotten the message. We continue to spend money. It's starting to cool
off a little bit. But the under thirty crowd, man, they just
refuse to change their behavior. And what that means is that they're just increasing
their debt. You had the student loan deferment period end. That's starting to
take its toll along with everything else. And that's the segment of the population.
And we see it credit card delinquency. So credit card balances are increasing,
you know, at just a tremendous rate. But thirty day delinquencies,
sixty day delinquencies are all creeping up very quickly. We see auto delinquencies starting
to creep up. We see mortgage delinquencies, pre foreclosures and these are all
the early indicators that the consumer is not even able to tread water anymore.
I mean, forget about putting money into savings and all that again, all
that good stuff that was happening when there was literally free money being thrown around
as now gone by the wayside. We were all hoping for at least one
rate cut, if most people were hoping for multiple rate cuts during this year
twenty twenty four. We're lucky if we get one. We're lucky if we
get one. So the average interest rate on a credit card is now close
to one one percent. It was fifteen percent, less than two years ago,
which was saying every time, yeah, well, but what's happened is,
you know, average people that were paying fifteen percent, and unfortunately,
folks with bad credit, we're paying close to thirty percent. Now you have
average interest rate is just that much closer to the same as somebody with bad
credit. So you're paying twenty one percent to borrow money out of credit card,
you're paying twenty nine thirty percent if you have bad credit. You're paying
twenty nine to thirty percent on department store cards at this point in time,
and again, most people have never had a lesson in how to manage credit
card death. They have no idea about daily compounding interest works, and I'll
just I'll set it up in a couple of sentences. Daily compounding interest means
that your balance is going to increase every single day during the billing cycle.
Then you'll get hit with all of that interest at the end of the billing
cycle unless you pay it off in full. If you don't pay it off
in full, your ballot, you could cut the card up and not spend
another dollar. At the end of the billing cycle, your balance will be
higher than when you started the months. Every single day it increases. So
people have to understand how to get out of credit card debt. It's not
easy, but it's certainly not complicated either. They just have to be willing
to be disciplined and get themselves into a debt management plan. Yeah, so
true, so true. I mean, Einstein always said he was mystified by
the power of compound interest, and that guy was probably the smartest guy in
the world. There's certainly one of the top five. So if I can't
figure it out, how do you think you're going to figure it out?
Just look at your credit card statement, right but this is yes, this
is not sustainable, dear Paul, is it? It is not? So
what happens is, you know, every financial transaction is based on emotion,
and right now again we have all this pent up demand still, so people
say, well, you know, times are tough and things are rough,
so I deserve the hot tub. I deserve to go on the cruise.
I deserve even though in the mental math that they do in thirty seconds,
they know they can't afford it. But you know what I mean, I
have some room on my credit card. I well, you know what,
I'll go on and apply for this buy now, pay later stuff a firm
and Karna and all these. That part of the economy has not even reared
its ugly head yet. It's not factored in to the current credit card debt
that we see, you know, spiraling out of control. Once we get
our handle on those facts and figures, it's really painting a bad picture for
the average consumer. We're right now, Yeah, isn't that the truth?
Uh? Yep? So look, you know what do you do? Yes?
So the message, the message is clear for the young people. Look,
if you need something and you have to put it on your credit card,
that's different than buying something that you want right. If you need a
roof over your head, if you're you know, you got to replace a
window, you got to you have an emergency repair in your car. That's
different than stopping at the convenience store every day. If you can delay the
big ticket items, you know, your durable goods, If you can delay
that for six to twelve months, hopefully we do get a rate cut.
Hopefully we do see the inflation continue to cool off a little bit and the
prices of the goods and services will come down. So shop around, even
with grocery shopping, you know whatever, the percentage is supposed to be obviously
varies from household to household, but shop your pantry before where you go shopping,
Shop around before you go shopping. That we did a thing that actually
was down at Florida. I don't know if you and I had spoken about
it, but I think it was Kroger and they stopped their delivery services.
They were looking to get rid of all these discounts. And you know,
maybe it's time for consumers. If you if you know what, if you've
shopped around and you have a list and a budget, hopefully to start with
go online and take a look. You might find that the place three blocks
away has chicken for you know, two dollars less a pound. It's on
sale. So again, this is a very very big change of behavior for
most people. But if they don't change their being gone, if they don't
change their behavior, and they don't you know, figure out how to do
things differently, they're going to get themselves in trouble. So true, a
maoun so true and so uh ok. So you get it under control.
But it's easier said than done, isn't it. Well, you have to
have a plan. Yeah, and we say this all the time. You
have to kind of swallow your pride, raise your hand, realize that you
are in trouble, and then figure out how you're going to deal with it.
Maybe you could take a short term loan from a family friend. But
if you have any any balances on your credit card, it's got to be
your number one focus. Because if you're putting money into a four to oh
one k right now and you're earning let's say four or five percent, it's
gotten that part of this economy has gotten a little better for the savers,
But you're earning four or five percent over here, but you're paying out thirty
percent over here. The math doesn't add up, so you have to Every
dollar that you put towards credit card debt is like getting a thirty percent return
in the market. So come up with a plan. Figure it out.
The first thing you have to do is stop spending. Maybe it's time to
you know, get that second gig. You get a part time job for
a little while. You take every penny and apply it towards your credit card
debt. There's only really two accepted ways to pay off credit card debt.
The first one is you you pay off the credit card with the highest interest
rates. First, obviously you got to pay the minimums on all your other
cards. And then the other method, the snowball effect, is where you're
you're paying off the balance is the smallest balances first and foremost. It gives
you a good sense of accomplishment. It's a positive feeling for people. Does
it work for that knockdown or something? Well, Avalanche is paying we use
avalanche and snowball. Balanche is going after the highest interest rate. Snowball is
you know, kind of the snowball effect. You're gobbling up the smallest ones
as you roll along. But listen, Kerry. If you can't figure it
out on your own, fire a company to help you. It's like hiring
a personal trainer. Right. So, there are some tremendous nonprofit groups out
there. They're credit counseling companies, debt management companies. You're going to pay
them a management fee, but it's worth every penny in what they're going to
be able to save you. Not to mention, they keep you on track,
right, and they hold you accountable. But more importantly, they have
much more leverage with the creditors. If you call your credit card company and
ask for help, you're one person, right. These companies have thousands of
clients, so their leverage is far greater than what we have. So they're
able to get better terms and conditions. You're talking about principal balance reductions,
you're talking about zero percent interest while you're paying back those cards. So raise
your hand, swallow your pride, ask for help. Obviously, do your
homework. Not all even if they're even if they're nonprofit companies, they're not
all created equally. So you're going to get you know, you have to
do a little homework and make sure you wind up with the best fit for
you when you're researching these types of companies. Yeah, yeah, So the
key is you got to do something. One thing that's really good about companies
like yours is it creates a effectively an accountability coach. Yeah, that's it
person. So you know, if you miss it, you know you're not
going to beat them up, but you're going to say, hey, look,
you're not achieving your goal here. You got to step this up.
Don't go to Starbucks and don't you know, cook it home. Don't think
you're saving money on fast food. And you know, hey, go to
Costco for gasoline, whatever you need to do, right, but don't go
shopping thereafter, because you're just going to blow a lot of and raise your
credit card balance. Right. Listen. One of the things we track every
single month for every single client is their utilization ratio. And that's the difference
between your credit card balances and your credit limits. And we track that like
a hawks because it's an indicator of where the client is and if they continue
to increase their utilization ratio. Look, it's the second biggest factor when we
talk about credit scores. Let's just take a step back. There's five factors
payment history is number one, right, rightfully, So you pay your bills
on time, you're going to have a better credit score that somebody than somebody
who misses thirty day late payments sixty day lay payments. But the second biggest
factor is your utilization ratio, And the credit score has nothing to do with
your income. Your credit score has everything to do with how much credit you
have available and how much credit you're using. You have to have to pay
attention to that. Those two things combined are sixty five percent of the overall
score. Then you have credit history, right. People ask me all the
time, oh, should I close this credit card? Before you close a
credit card, you should do a deep dive credit analysis to make sure it's
not going to have a negative impact. In your mind, you would think
there's no way that closing a credit card could actually hurt me, but from
what we've seen over the past twenty years, it's the number one thing that
can hurt someone besides late payments and collections and judgments and charge offs. Closing
a credit card, think about your utilization ratio. Whatever credit you had available
on that card is wiped away, and whatever credit history you had for that
account is also wiped away on the day you close it, so be careful
about closing it. Then you have types of credit. There's really only two
installing contracts and revolving your installment contracts or your mortgages, car payments, UH,
student loans where you have a fixed monthly payment revolving, or your credit
cards. And the last piece, you know, is that new credit piece,
and that's where your inquiries can can hurt you. Look, you're there's
a risk of only losing a couple of points for each inquiry, but people
get themselves in trouble by applying for numerous cards. You know, you buy
a new house, or you're or you're looking to get a house, or
you and you're you're applying for far and all this stuff. Those inquiries start
to add up very very quickly, and it can tank your score pretty quickly.
So be careful about how many people you allow, how many creditors you
allow to actually pull a hard inquiry for your credit report. And let's not
forget that. You know, when you go applying for new cards and you
get new cards, that also dings your credit report. Assuming you can get
it right for sure, it takes about six months. We call it seasoning,
the tradeline and the new account. So the new account is scary to
the fight O scoring algorithm or the vantage score algorithm, because no one knows
how you're going to manage this new debt. So if you open a new
account, it's open, active and positive. After about six months, it
might actually help you. But in the beginning, make no mistake or doubt
about it, you're going to lose some points just by opening that new account.
This is why you know we deal. We're very very much referred within
the real estate industry. Lenders and realtors and real estate agents. They cringe
when they're go going through the home purchase pro process and the barer buys new
furniture as soon as they put the contract in on the home. They buy
new furniture. They don't use their debit card, they don't pay cash,
they open the line of credit with the furniture store because they're going to save
fifteen to twenty percent. Never ever fall for that trick. It's a marketing.
The marketing geniuses put together those point of sale discounts for good reason,
but that could actually we've seen it destroy the home purchase process. Someone was
not able to buy a home because they opened a new account. And it's
not just one person. Unfortunately, over the past twenty years, we've seen
it happen numerous times. They bought a new car, they got a new
credit card, department store card, they co signed for student loans. Those
are all the types of things that can actually sink a real estate transaction.
So consumers have to be careful. Yeah, careful with your credit. That
should be the byword. And one little trick I saw was people that had
the money and they don't have a lot of the a lot of credit to
actually make prepayments on the cards so when the charge is hit, it doesn't
up their utilization rate and they're basically the scores stays around the same. Brooking
micro payments on any line of credit is always a good idea, but especially
for credit cards because remember what we said about daily compounding interest. It's based
upon yesterday's the week before, whatever those ballances were. So let's just say
you were you know, you're going to pay one hundred dollars towards towards this
credit card. Make four payments of twenty five dollars, make two payments of
fifty, make free payments of thirty three thirty three, however you want to
do it without driving yourself crazy. But any micro payments that you can make
bi monthly weekly instead of that one lump sum, whether it's for your mortgage
or your credit cards, will always help you decrease the amount you're going to
pay an interest. Yeah. Yeah, And just because they watch it,
they give you the pay once for the month doesn't mean you can't be paying
weekly. And you could just set up auto transfers from your account. You
sure catch charged anything more for it, of course, and you will wind
up paying less interest and raising your score in the process. Absolutely, absolutely,
there's a great point saving money on interest and keeping your utilization ratio lower
than what it would be if you only made one payment, right, and
especially if you're going to be going for a mortgage or something and you're on
the edge, I mean, you don't need what do you need for a
mortgage? Well, obviously the higher your credit score, the better the cheaper
the you're going to be paying. So that's going to be a benefit,
But you've got to get over the threshold of six eighty or whatever it is
these days. Actually, some lenders, you know FAJ lenders are still going
down to about six twenty. It's somewhat of a sliding scale based upon down
payment, what percentage you're gonna put down on the on the home purchase.
But again it could come down to the point where one, five, ten
twenty points could make the world of difference of not only just getting approved,
what how much it's going to cost or save you. You know, in
interest everything is based upon what's called tiered base pricing, So every lender has
different tiers and that's where they're going to offer different interest rates. So as
your score goes down, your tiers go up in terms of your interest rates.
And again a six nineteen is not a six twenty. Six twenties not
a six thirty, so all of those. Every time you go up or
down at a tier, it's going to cost or save you money. So
people look, I say it all the time. You don't have to be
crazy about it and watch it every single day, but especially if you're thinking
about financing anything, you better start paying attention to your credit score. Hey
couldn't agree with you more. That's why we always love having you on here,
Paul. Hey just tell us again where we find you, how we
connect with you, on the web. Yep, go to better Qualified dot
com. All right links in the show that's to this interview on Financial Survival
Network dot com. Please, when you visit the site, sign up for
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email case you got a question for Paul and myself at carrie lets dot com.
Paul, thanks for coming on again and we'll talk to you again real
soon. Thanks, Carry, I have a bid one. Thanks for listening
to Carrie Let's's Financial Survival Network, your solution to today's trying times. For
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