Plan a strategy to get ahead of debt

According to the U.S. Census Bureau, more than 69 percent of Americans carry some sort of debt whether it is credit card debt or student loan debt. It is a vicious circle that requires some pre-planning on your part to get ahead of debt.

Make a monthly budget and stick to it: You should not spend more than you earn a month. Preparing a budget help you to understand where money is going and help you to cut corners to save and pay off burdensome debt.

Negotiate your credit card and revolving debt: Credit card companies are known to charge outrageous interest rates based on many factors. You can negotiate your interest rate with your credit card companies. If a new offer comes with a lower interest rate for balance transfer, use that to get a lower rate or negotiate with your current credit card company using the new offer. However, before accepting an offer for lower interest rate for balance transfer, consider other fees associated with the transfer.

Stop charging new purchases to your cards: This is where your monthly budget and sticking to it comes handy. When you pay off a card, do not cancel it without considering its impact on your FICO score.

The Housing and Economic Recovery Act of 2008

This article was written by Samuel Phineas Upham

In 2008, a series of poor financial decisions related to mortgages was suddenly coming to light in the worst possible ways. Many lenders had authorized so-called subprime mortgages, which helped buyers to get a home whether their income was sufficient enough to handle the payments or not. Within two years, the rate for subprime mortgages had risen to nearly 20%, well above the historical rate of 8%.

As a result, institutions like Freddie Mac and Fannie Mae started to show signs of collapse. This was not helped by the sudden surge in mortgage delinquencies either. Within a matter of years, the Fed was dealing with a series of poor loans that threatened to lower the US credit rating and destabilize the world financial market.

HERA, or the Housing Economic Recovery Act, was designed to try and restore some faith in these institutions. It guaranteed up to $300 billion in new mortgages at the 30-year fixed rate for subprime, or poor credit, borrowers. The condition was that the lender had to write down the principle loan balance to 90% of the current value. This meant a bit of extra capital, with some assurance that the loan would be paid back.

The act also increased the amount that the Fed could loan to a buyer, from 95% of the home’s value to up to 110%. It also stipulated that buyers would be responsible for a 3.5% down payment, and it barred sellers from financing down payments. The housing market is in recovery, but FHA is still relevant to first-time home buyers of today.

About the Author: Samuel Phineas Upham is an investor at a family office/hedgefund, where he focuses on special situation illiquid investing. Before this position, Samuel Phineas Upham was working at Morgan Stanley in the Media & Technology group. You may contact Samuel Phineas Upham on his Samuel Phineas Upham website.