We’ve all been hearing the doom and gloom from Wall Street and Washington for weeks now. At first, I didn’t let it bother me. I thought it would only affect people with sub-prime mortgages or maybe those using credit cards to live. To be honest, I don’t personally feel this recession. But as I continued to listen to politicians and analyst tell me this is as bad as the great depression and that this has yet to hit Main Street, I began to question how this would affect me.
While listening to all this doom and gloom coverage one morning I heard that Warren Buffett is making 10% interest off of General Electric. So GE is paying 10% interest. Can you imagine what average Americans will now have to pay for credit interest? I can see how anyone getting by from month to month using a credit card to fill the gaps is going to have a problem. However, that still left me wondering about people who don’t use credit cards, unless paid in full each month?
Then last night I watched Suze Orman, and she broke it down for me. Since there is less capital in the economy and less credit to go around, not to mention the fear that no one will pay their credit, the average American will see their credit limit decrease soon. There will be a freeze on credit limits, and in many cases we will get one of those long legalease letters that has in it’s fine print that the credit limit on the card has been decreased. For people who are using these cards and not paying them off, that means you may be at your max. Even if you are not at your max, your debt to credit limit ratio will now be higher, thus affecting your FICO score, and thus raising your car insurance premiums, making it even harder to get a loan, and generally giving you a gray financial cloud above your head.
My main concern with this crisis is the loss of jobs. Loosing a job would make finances hard for just about anyone. Unemployment is scary, even with an emergency fund. Personally, I am trying to spend less than usual and save even more lately. My hope is that this now $800 billion dollar bail out/pork barrel bill will at least save American’s their jobs.
The good news is that from everything I can find, it is possible to buffer yourself from this type of crisis through good financial planning. Getting out of debt, saving an emergency fund, diversification- all of these things that make good financial sense during normal times are doubly good during a crisis.
