Tips for Surviving A Recession

Americans are worried about their finances, and they're angry with their government. The federal government is borrowing tens of billions of dollars to keep zombie banks and corporations alive, while at the same time offering limited help for individual Americans who have always been responsible with their finances. Regardless of what the government is doing, middle-class families, small business owners and everyone else who's feeling the pinch of this recession should do what they can to survive. Here are some recession survival tips:

• Become An Indispensable Employee - Layoffs are happening everywhere; no sector of the economy is safe. A sound workplace strategy: become the employee that your company can't do without. You don't have to suck up to your boss, but there are things you can do to make yourself stand out in the crowd. Be the employee who shows up to work early and leaves late. Make a point of showing off to your boss just how productive you are. Every once in a while, make intelligent recommendations on how the company you work for can save money. When you see a conflict flare up, be the level-headed mediator who resolves the problem.
  
  
• Get Rid of Your Debt - Don't get into the mindset that having credit card debt is OK. It's not OK. Even if you have only a few hundred dollars of credit card debt, and you're paying interest on that debt, then your finances need fixing. Cut back on extraneous expenses and pay your credit card debt down to zero as soon as you can.
  
  If you have old credit card accounts that you don't use, keep these cards open. This will help to keep your FICO® credit score healthy. If you recently used an old credit card to make a small purchase so that your bank doesn't close the account, that's fine. But pay that balance down to zero right away. You will reap no benefit from paying down a credit card balance over time, large or small.
  
  
• Stay Fit! - We all know that there are unnumbered benefits associated with physical and mental fitness. One of the most overlooked is the amount of money it can save. You can't prevent the medical bills associated with e.g. a car accident but, by staying in shape, eating right and not smoking, you can prevent maladies like cancer, type II diabetes, heart disease and hypertension. Medical bills can pile up extremely fast, and, if you're unfortunate enough to end up dealing with a protracted illness, you could end up losing your job as well.
  
  Keep your brain healthy by eating foods that contain omega-3 fatty acids as often as possible. Sardines, salmon and fish oil pills are all good picks. If you want to have a great mind into your old age, exercise and cultivate your brain by learning new skills like a new language or new dance steps. When you're bored waiting in line somewhere, count backwards in your head. Start with the number 300, then subtract seven or nine (not an easy decrement like two or five), and keep going. A healthy, productive brain is the best tool you can have to build wealth in any economic climate.
  
  
• Boost Your Rainy-Day Fund - Your goal should be to have enough cash in the bank to survive for a year if you lost your main source of income.
  
  
• Invest In Gold and Peer-to-Peer (P2P) Lending - Right now, both the Dow Jones Industrial Average (DJIA) and the S&P 500 Index are off more than 45% from their October 9, 2007 peak. Bottom line: stocks aren't looking good right now. Moreover, since stocks have become unattractive to both institutional and individual investors, lots of Wall Street money has been moving to the safety of government securities, driving yields way down. Investing in gold makes perfect sense right now. The Fed and the Treasury department have been pumping vast quantities of cheap cash into the economy, which will cause inflation to flare up like an ulcer down the road. Investors will move their money to gold even faster than they are now, driving its price upward.
  
  P2P lending is also a great investment option right now, if you can tolerate some risk. For example, at Lending Club, the average return is 9.05%. Where else can you help yourself with a high rate of return, while helping worthy borrowers who can't find loans elsewhere?
  
  
• Sell Stuff on eBay and Craigslist - You know you have lots of stuff around the house that you could sell on eBay.com, so just sell it. Better yet, list your stuff on Craigslist.com for free. Whenever you pick up an item in your home and say to yourself, "Nah, that couldn't sell on eBay or Craigslist," snap a few photos of the item and list it. Just about anything can be sold online; this is especially true today as this recession has turned many consumers into serious bargain hunters.
  
  
• Refinance Your Mortgage - Right now, the Federal Reserve and the Treasury Department are working together to keep mortgage rates as low as possible. The average refinance rate is expected to fall and remain below 5% for some time, which makes it a great time to get out of a high-rate mortgage. To get the best rate, make an effort to get your FICO credit score above 760 (720 is no longer considered top-tier.)

If you don't like what the government is doing with your tax dollars and money it's borrowing from other countries then contact your representatives in the House and Senate. But don't waste too much time and energy complaining. Every morning, remind yourself to focus your efforts on increasing your income and net worth. This recession has the potential of lasting two years or more, so even wealthy families are cutting back and preparing themselves for the worst. The key to surviving this economic downturn is to build and preserve wealth, but never overlook the importance of preserving your mental and physical health.

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Interest Rates Are Rising, Which May Translate to Financial Dire Straits for Those with Adjustable-Rate Mortgages (ARM's)

The Prime Rate has been on the rise since the summer of 2004, and with rising interest rates comes higher minimum payments on revolving credit card balances, higher payments on Home Equity Lines of Credit (HELOC), and, for those who opted for an Adjustable-Rate Mortgage (ARM) that's tied to the Prime Rate, it means that the mortgage bill has been eating up more and more of the household budget (depending on when the low interest "teaser" period ended.)

Quick Tip: A Home Equity Loan (HEL) is typically more
consumer-friendly than a Home Equity Line of Credit (HELOC).

When compared to other mortgage products, ARM's are often easier to get, and sometimes borrowers signup for ARM's that they can't afford: when the low interest period on the ARM ends, the monthly payment then rises to a level that the borrower didn't anticipate, and can't manage. This can mean serious financial trouble for the borrower, even foreclosure in the worst cases.

The folks at Bills.com recently issued a press release with some great tips on how to avoid the financial headaches that often accompany rising interest rates. Here's a clip:

"As any real estate agent knows, home sales heat up with rising temperatures every summer. Now, with mortgage interest rates more than a full point higher than at this time last year, fuel costs riding high, higher minimum credit card payments and consumer debt still raging, many U.S. homeowners risk foreclosure on their homes -– but they don’t have to lose their slice of the American dream.

'Last year, 31 percent of home loans issued were adjustable-rate mortgages (ARM's), which could spell big trouble as fixed mortgage rates hover around 6.83 percent and ARM's are poised to go much higher,' said Brad Stroh, chairman of Bills.com. 'Holders of ARM's will be paying an additional $14 billion annually for every 1 percent increase in mortgage rates. People who bought homes at the edge of their spending ability with an ARM could face dire consequences as their mortgage payments increase -- but they can take steps to keep their financial situations in check.'

According to the Mortgage Bankers Association of America, 4.7 percent of U.S. mortgages were delinquent at the end of 2005. With $9 trillion in outstanding U.S. mortgage debt, that places $423 billion at risk of foreclosure. Homeowners who are at risk (as well as prospective homeowners) can use the tips below to avoid mortgage trouble.

How to prevent problems:

• Create a budget and don’t stretch yourself too far. The unexpected can and does happen to millions of Americans each year. For people who live at the far edge of their means, one life event can hijack their lives and lead to defaults on bills and/or mortgage payments. The key is to build a detailed budget of income and expenses, making sure to allow some breathing room to weather an unexpected downturn.
  
• Be very careful with ARM's or interest-only loans. These types of loans let borrowers qualify for more expensive homes -– but beware as rates (and payments) climb. If you can barely afford the payment on your ARM or interest-only mortgage, you are asking for trouble in a few years when the 'teaser period' expires and your loan re-sets to a fixed rate. Be sure you have extra cushion in your budget with these loans.
  
• Don’t jump to refinance your home to pay off credit card debt. Many people faced with large credit card debt or other unsecured debts consider refinancing their homes. But this strategy only moves the debt, securing it with your home. That puts your home is at risk of foreclosure if you are unable to pay. If you are not confident that you can keep up with your home loan payments, consider debt resolution or another debt relief option.

'We can’t emphasize enough that people must educate themselves about what they're getting into with a mortgage,' Stroh added. 'Overall debt problems will continue to escalate unless people rein in their spending to live within their means. Unfortunately, for some people, that may mean losing their home to resolve their financial situation.'

How to avoid foreclosure -- if it’s already on its way:

• Enter into a forbearance agreement. For a temporary hardship, lenders might grant a forbearance agreement to lower –- or eliminate –- payments for a limited time.
  
• Consider loan modification. A loan modification seeks a permanent change to the loan, such as lowering the payment and extending the loan’s term, or incorporating any delinquencies into future payments.
  
• Obtain a 'deed in lieu' of foreclosure. A 'deed in lieu' essentially allows the borrower to return the title or deed of the property -– giving the home back -– to the mortgage holder to avoid foreclosure.
  
• Sell the home. Selling your home may not be ideal, but it is a way to avoid foreclosure proceedings on your house and pay back your lender.
  
• Refinance the loan. It may be possible to refinance your mortgage for a lower interest rate and/or lower monthly payment (this is much different than refinancing to take cash out to pay off credit cards). However, if you already have had late payments on your mortgage, the interest rate offered to you may be too high to lower your monthly payment. Educate yourself on current rates by checking online rate comparison sites and using online calculators to determine the real costs of refinancing. These tools are available on a number of Web sites, including http://www.bills.com/calculators/.
  
• Be cautious. Be wary of so-called equity skimmers. If your house is facing foreclosure, you will probably receive numerous solicitations from companies looking to 'help' you prevent foreclosure by offering to sell your home for you or by taking ownership of your home. In most cases, these solicitations are scams trying to take advantage of people in difficult situations. The perpetrators aim to snatch the equity you have built up in your home.

In many states, foreclosure rates have already started to increase, especially impacting the segment of the population that carries adjustable-rate mortgage loans, whose payments climb upward with every interest-rate increase. However, homeowners can make choices -– ideally, before they purchase a home, but even after problems arise -– that will help them keep a home, or at least minimize the damage a foreclosure could have on their futures."

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How To Qualify for The Best Possible Rate When You Refinance Your Mortgage? For Most Lenders, It's All About Documentation

If you are in the market for a mortgage refinance, it's critical that you have all your documentation ready before you apply for the loan: being well-prepared with the right documentation is key to getting the best possible interest rate with just about any mortgage refinance provider.

For more tips, here's a snippet from today's press release:

"How do you qualify for the best interest rate when refinancing your home mortgage? To lenders, it’s all about documentation. The better you can document your income, assets, and employment, the higher your chances are for getting lowest interest rates. Here are some tips on qualifying for the best rate when refinancing your home mortgage.

When applying for a home loan, you want to have your paperwork in order, ready to be provided to your loan officer. If, for any reason, you are unable to document some of your income or assets, let your loan officer know at the time of the application. You don't want to waist time chasing something that you don't qualify for. You want your loan approved, your rate locked, and your loan funded. Here are some of the most important qualifying criteria.

On conventional loans, your monthly mortgage payment, together with minimum monthly payments on your other financial obligations, such as credit cards and auto loans, can not exceed fifty percent of your gross monthly income. Your income can be verified with your W2 or 1099 forms, or your tax returns. On top of that, you have to verify that you have two months worth of your proposed monthly mortgage payments. Assets must be liquid, such as cash in the bank, 401K, IRA, etc.

If you can not meet all of the above mentioned requirements, you can still qualify for a low rate. But your rate will be slightly higher as you move down the list of available programs:

• No income, but verifiable assets and employment
  
  
• No income or assets, but verifiable employment
  
  
• No income, assets, and no employment"

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