AFSA Education Foundation
919 18th Street, N.W., Washington, DC 20006
Phone: (202) 296-5544 – Fax: (202) 223-0321 – Web site: www.afsaef.org
For release at: 9:30 a.m. ET Wednesday, October 31, 2001
Contact: Lynne Strang (202) 296-5544 ext. 613
Managing Credit in Unpredictable Times: Lower Interest Rates Help Some, “Tried and True” Basics Help All, Says AFSAEF WASHINGTON …..Given the mixed messages they’re hearing, many people are uncertain about what lies ahead economically and whether or not to buy, borrow or save. Should they avoid taking on debt in light of the slowing U.S. economy and large numbers of job layoffs? Or should they take advantage of low mortgage rates, heed The White House’s request to go out and use their credit cards and believe, as some economists do, that a financial rebound will occur in 2002? William Dunkelberg, Ph.D., professor of economics at Temple University and a Board of Directors member of the American Financial Services Association Education Foundation (AFSAEF), believes current interest rates present a possible advantage to the well over half of all Americans who have debt. “Now is a great opportunity to reschedule and restructure what you have – the window on such low interest rates will not stay open long,” says Dunkelberg. Among the ways to do this, he says, are to watch for credit card offers with established longer-term low rates, consolidate existing second mortgages and/or credit card debt into a new lower-cost mortgage, and to refinance mortgages carrying interest rates of over 7% a year (particularly if there are no points and closing costs are under $1000). At the same time, Dunkelberg cautions consumers against incurring new debt they’re unable to handle. “Even with an almost certain recovery next year, the economy will not soon return to the exuberance of 2000,” he says. “For individuals or families that have lost some or all of their income, it may be necessary to forgo nonessential purchases and either put away the credit cards or limit their use,” says Susie Irvine, AFSAEF’s president and chief executive officer. “Otherwise, the best course of action is to fall back on credit management basics that will be useful no matter what happens next,” Irvine says. AFSAEF’s recommendations are as follows: Establish a budget if you don’t have one already. If you do, take the time to review it and make revisions based upon current income and expenses. Be sure to allot funds for emergency savings and to include creditor obligations. -- More --
Managing Credit – Page Two If you decide to take on additional credit obligations, know the pros and cons of different forms of credit. A home equity loan, for example, may provide an income tax deduction and a means to consolidate other existing debts – but you could lose your home if you fail to make your payments on time. Know what you can comfortably repay each month. The amount of credit for which you’ve been pre-approved isn’t necessarily what you need to use based upon your personal circumstances. Watch out for “advance fee loans” (where a telemarketer asks for upfront fee payment in return for promising some type of credit) and other scams. Unfortunate times can bring out bad actors looking to take advantage of borrowers. Take action at the first signs of financial difficulty. These include being consistently late with bill payments, being denied credit or making only the minimum payments on your credit card. If you’re seeing more than a few red flags, it’s time to contact your creditors. Get outside help if you need it. Contact the National Foundation for Credit Counseling (1-800388-2227) to locate a nonprofit credit counseling service near you. Consider bankruptcy only as a last resort. While a filing may enable you to wipe out debts, it can stay on your credit record for up to ten years. As a result, you may have difficulty obtaining credit or will have to pay higher interest rates.
In addition to the above, AFSAEF points out that active and reserve military personnel may be eligible for debt relief under the Soldiers’ and Sailors Civil Relief Act. If you think you qualify, contact your lenders for more details. Residents in the New York City or Washington, DC areas or others directly impacted by the September 11th terrorist attacks may also be able to obtain special relief from their lenders. Founded in 1990 and based in Washington, DC, AFSAEF is the consumer education affiliate of the American Financial Services Association (AFSA), a national trade association for market funded financial services firms that provide credit to consumers and businesses. Its nearly 400 member companies include consumer and commercial finance companies, auto finance/leasing companies, mortgage lenders and credit card issuers. Among AFSAEF’s free publications is its “Consumer Budget Planner,” which can help individuals through the process of establishing a budget and identifying credit obligations. To obtain a copy, visit the Foundation’s Web site (www.afsaef.org) or send a self-addressed stamped envelope to AFSAEF, 919 18th Street, NW, Dept. BP, Washington, DC 20006. # # #