Home equity line of credit

The Golden Rule

Maybe you’ve heard of it.  Maybe you’ve experienced it.  Maybe you’re one of the ones teaching the lesson.  Any which way you look at it, the concept is pretty clear:

The Golden Rule of the world of finance ~ Whoever has the Gold makes the Rules.

Money is a pretty complicated thing.   When you don’t have it, your life can be complicated.  When you do have it your life can be complicated.  The big difference in those complications seems to be whether you are following someone else’s rules or making your own.

Right now there are a lot of people at the mercy of rules dictated by institutions and government and others all over the financial industry.  Real estate owners and investors are not the only ones feeling the credit crunch, although they are arguably shouldering the brunt of the on-going mess in both residential and commercial markets.  Barriers such as tightening regulations and newly imposed standards are hurting new purchases.  Lower property values are making it tough to refinance even solid performing properties.  Existing Home Equity Lines of Credit (HELOC’s) are being capped and closed despite perfect payment histories and spotless borrower credit.  They may not tell you this, but even lenders who actually want to renew your investment loans may not be able to because they already have too many of that particular type of loan on their books.

Take a look at the banking and credit card sectors, too.  If you haven’t been monitoring your statements on a regular basis, you really need to pull them out and read carefully.  Your savings rate may have been cut and credit card interest rates could have tripled for no apparent reason.  New monthly and annual fees may now be applied to your accounts and many in-place fees may have jumped up.  Worse, that credit card you haven’t used in a while may have actually been canceled and your account closed at the company’s sole discretion.  Every single one of these situations has happened to me over the past two years.

It’s frustrating.  But unfortunately, when you have structured your life around debt and credit provided by others, you often end up paying the price, literally.  Remember the Golden Rule?  They have the gold so they make the rules.

Sure, you can rant and rave about the injustice of it all but basically if you want or need the cash/credit that they offer, you must accept their terms or go elsewhere.  Credit card companies send you those lovely little notices stating that if you don’t want to accept the new rate you are welcome to cancel the account and simply pay off the balance.  They are banking on the fact that most people won’t be in a position to do so.   Why do you think they send applications to college students as soon as they turn 18?  Because spending habits are formed early and hard to break.  Once you dig that hole, it’s hard to get back out.  And the cycle begins…

So what can we do?  Well, we can start by weaning ourselves off of this dependency on credit as a means to support unsustainable and, in most cases, unnecessary lifestyles.  It’s hard and will take some time and changes but has to be done if you don’t want to be a slave to your debt.

• Take your financial temperature.  The first step is to really look at your financial situation.  Figure out what income you have coming in and what expenses you have going out each month.  Look at everything – credit card purchases, ATM withdrawals and cash purchases, bank statements.  Click here to request a template to help you get organized.  As ugly or upside down as it may be, that’s your current budget.  Make a list of all your loans, balances, rates, etc.  Don’t panic at the totals.  You have to know where you are before you can look at where you’re going.

• Live within your means.   If your expense dollars outnumber your income dollars, rest assured you aren’t alone.  But unless you are the US Government and can print more money, you’re going to have to slash those expenses and bring them in line with your income.  Be prepared to make big changes.  Maybe you can save $1000/mo by renting instead of owning your home or eliminate a $400/mo payment entirely by buying a used car.  You don’t have to cut out everything, just prioritize and make sure you are spending on what is truly important to you (read more  Live and Spend without the Guilt).  Remember, this is your financial health we’re talking about.  Would you choose to not reset a broken arm because others might think you look ‘different’ in a cast?

• Reduce credit card balances.  Start with the highest interest rate and pay as much as you can each month while making minimum payments on everything else.  It’ll take some time but you will begin to see that balance go down more and more each month.  Focus on that great feeling and it will motivate you to keep going.  Rinse and repeat for each card with a balance.

• Transfer balances.  Call every company you owe and find out if they will review your account history and lower interest rates.  Find out if they will accept a lump sum payment for a discount if you pay the balance now.  If and when you have room on a lower rate card, use it to pay off another card and proactively manage your debt to pay less total interest.  Set email alerts when rate specials end so that you can reevaluate as needed.  Saving on interest is like putting CASH back in your pocket.

• Bring the list; leave the cards.  Temptation is best dealt with by removing it altogether.  Take a list when you shop and ONLY get those items.  Leave your credit cards at home and use cash.  The less accessible your money is, the less likely you are to spend it.  And for goodness sake, go to the local park for recreation and exercise, not the mall!

We all know that money itself can’t buy happiness (on the contrary, money tends to magnify the real issues in most situations).  But, like any other tool at our disposal, having exactly what you need at hand can make a world of difference in accomplishing our goals.  

These people and institutions only have the power that we give them, though.  That WE GIVE THEM.  Our spending habits are letting these people hold us underwater.  Take back control of your life, your spending, your credit and borrowing power.  Choose to pay and play by your own rules.