There are two reasons, according to Brooks, if you carry over debt to February you are in for a big surprise:

1. Interest rates: In response to the new credit card legislation that will go into effect February 2010, credit card companies have raised credit card rates as well as changed them to variable rates. ANYnew debt created in this environment could end up being extremely expensive. The problem is that those variable rates are tied to a benchmark, and that benchmark has nowhere to go but up. As a result, the cost for holding debt for consumers will greatly increase over time.

2. Reduced credit limits: In response to the new credit card legislation, credit card companies have sought to reduce their own risk by reducing consumer credit card limits. As a result, credit scores can be drastically affected. One aspect of credit scoring is the credit utilization ratio. This formula looks at total overall credit that has been issued to a consumer and the amount of that credit the consumer is utilizing. An ideal credit utilization ratio is less than 30%. For example, take the consumer that has
$10,000 in total credit limits. If that consumer has 8,000 of debt on those credit limits, then the consumer is utilizing 80% of their credit limits. If the credit limits in this case are lowered to $8,000, their credit utilization ratio becomes 100% which would have a much more negative effect on the credit score.

The bottom line: pay cash whenever possible and ONLY charge what you can pay off in January.

Brooks warns to be careful because retailers are going to offer deep discounts to those who apply for credit cards and use them for holiday shopping.

As you cover the holiday shopping season, please consider speaking with Brooks.

It’s that time of year again where you make promises to improve yourself in one way or another. Whether it’s to eat better, exercise more or improve your lifestyle, setting goals for the upcoming year helps increase the possibility of making improvements on your quality of life versus the prior year.

One of the best resolutions you can make this year is to take better control and have a clearer understanding of all of the moving parts in your financial life.

I have outlined 13 primary issues that you should review, with the help of a financial advisor, to make these goals a reality:

1. Investments: Review your current asset allocation, funds and managers as well as the correlation and diversification of all your investments.
2. Insurance: Review your life, long-term care and liability policies as it pertains to types, premium, ownership and beneficiary of each policy.
3. Liabilities: What types of debt do you have and what are the balances and terms?
4. Qualified Retirement Plan/IRA: What are your plans for future distribution of the plan at retirement and who are your beneficiaries at death?
5. Stock Options: What types of options do you have and what are the vesting and exercise issues?
6. Business Succession Plan: What are your plans on selling or passing ownership to someone else (pre- and post-death)?
7. Durable Power of Attorney: Who have you given legal authority to act on your behalf in the event you are unable to handle your own affairs?
8. Gifting To Children And Descendants: How do you want your assets to be distributed to them?
9. Charitable Gifting During Life: If interested, what organizations would you want to donate to during your life? (whether it’s cash or securities in kind)
10. Titling Of Assets: How is the ownership of your individual assets titled as? (Jointly, Tenants In Common, Individually, etc.)
11. Executor/Trustee: Have you named an executor/trustee of your estate?
12. Distribution Plan at Death to Spouse/Descendants: How do you plan your assets on being distributed when you die? Directly to named beneficiaries? To trusts?
13. Charitable Inclinations at Death: If interested, what organizations would you want to donate to after you die?

It should be understood that some of these 13 issues may not be applicable to everyone but it does encompass everything that will give you a better grasp on your financial affairs and certainly provided a trusted advisor everything they would need to know to help guide you and perhaps get these issues on paper to provide actionable ideas.

As our country faces one of the worst economic crises since the 1930’s, we must be prudent with our spending and keep our credit safe.

Credit is very important.

It lets us enjoy the things we need today with the promise of paying it back tomorrow. However, we should be careful not to get carried away or we could end up in debt.

Scriptures say “For the love of money is a source of all kinds of evil” (1 Timothy 6:10). Unfortunately, we live in a material world and, as people of faith, we need to stay away from material things and focus on investing for the future.

Best selling book by Rev. Luis Cortés, Jr.

This is where credit comes into play, specifically good credit history. Without it, you may not be able to get a mortgage to buy a home, or a loan to buy a car.

“Trouble with credit is a problem you can’t ignore. No matter how much money you earn or where you live, if you’ve made mistakes with credit in the past, those mistakes will haunt you –unless you empower yourself to fix your credit. And you can.”

Rev. Luis Cortés, Jr.

Excerpt from How to Fix your Credit by the Rev. Luis Cortés, Jr. For more information about this and other books by Rev. Cortés, please visit: www.esperanza.us.

Some things you can do to protect your credit now are:

1. Set your financial long-term goals –maybe your goal is to retire by a certain age or to become a homeowner. No matter the goal, set a plan to make it happen.
2. Review your budget –check your monthly expenses and see which are really necessary and which ones you can reduce or eliminate. Always stick to your budget.
3. Be on time to pay your bills –avoid late fees or missing payments. This can quickly ruin your credit.
4. Build your savings or your emergency funds –each month set a side an amount of money for your long term financial goal. Even if it is a small amount, this is always a good idea. Experts say that you should have between three to six months’ worth of expenses saved in case of job loss or any other financial emergency.
5. Avoid making the mistakes of the past –having self control is of utmost importance for your financial wellbeing.

We are living in difficult times and we must pray to the Lord to help us through it. Just stop and listen to what God is trying to tell us to be able to set everything into the right order.

At the same time, we must give thanks to Him for all that we have –our family, our friends, and our community; our physical and spiritual health. We thank the Lord because “we can do all things through Christ which strengthens us” (Philippians 4:13).

We have witnessed the largest and supposedly most trustworthy institutions become financially impaired principally due to the poor decisions made by managers.

We have also witnessed the government become actively involved in the sector, putting its good name behind trillions of dollars in financial assets of dubious quality in order to prevent what could be the collapse of the entire financial sector. As if this weren’t enough, investors have lost over $1 trillion in equity around the world and markets continue to fall.

What caused this financial crisis?

The principal cause of this crisis is the U.S. housing sector.

During the boom period earlier this decade, millions of mortgages were approved for individuals who under normal circumstances would have never, ever been approved for them. These people did not earn enough money nor have sufficient assets to truly afford these mortgages. The collateral for these mortgages, the houses being bought, were really not worth the purchase price either.

Many people at the time benefited from this “open secret”. The buyer was able to live in a home that traditionally would be considered beyond their means. The mortgage broker and real estate agent earned a juicy commission. The bank that issued the mortgage charged higher than average fees and interest rates. Freddie Mac and Fannie Mae charged high fees to insure these mortgages for the bank.

Investment funds and other banks bought financial instruments backed by these mortgages that offered very high rates of return.

To multiply this return, they borrowed almost unimaginable amounts of money. And of course, executives at all of these companies received millions of dollars in bonuses for their “good work”. The shareholders of these companies were also rewarded with rising stock prices.

Even the government benefited from higher tax receipts and the good publicity associated with such a high percentage of the population owned their own home.

But all of this success was based on a key assumption that buyers and the ability to make their mortgage payments consistently on time. That of course, was not the case.

Everything has collapsed and the success has become failure.

Long-term and short-term effects

The effects of this crisis will be felt for many years. In the short term, our economy will enter a recession and interest rates on consumer debt like credit cards, card loans and mortgages will increase. It will also become more difficult to qualify for a loan.

The safest investments, like government securities, will pay very low rates of return as everyone rushes to buy them.

The government will also become far more active in regulating financial activity. If the past is a guide, they will over shoot and produce too much regulation which will stifle economic growth and lead to less job opportunities. We may even enter a period of deflation (the opposite of inflation) were prices fall due to lack of demand, which is very damaging for the economy.

Is the U.S. economy still strong?

Despite all of this, it is important to remember that the U.S. economy continues to be the largest in the world and in many respects the safest. It is bigger than any financial crisis, even this one. As an individual, if you try to save a little more, spend less than you make each month, and invest in truly secure investments for the long term, then this crisis will prove to be nothing more than a bad memory.