August 31, 2013
It is becoming easier to get a loan these days and that's not necessarily a good thing.
“I’m telling you things have gone bizarre again, at the exact time they shouldn’t be going bizarre. So, you need to stay very strict with yourself,” warns Suze Orman.
According to the Mortgage Credit Availability Index (MCAI), credit has consistently become more readily available over the past few months. The MCAI increased for the fourth-straight month in July to 112, up from 100 in March.
This is still a far cry from the 800 it would have been in 2007 when loans were their easiest to obtain, but it clearly shows a move toward looser credit requirements.
Therefore, as banks become more lenient, consumers must become more discerning about their own financial situations. “Don’t get tricked into doing something you can’t afford,” says Orman. “Be very, very careful.”
Here are a few of the things creditors are doing to get you to spend money you don’t have...
Answer Yes or No to the follow statements.
I pay all my credit card bills in full each month.
I have an eight-month emergency savings fund separate from my checking or other bank accounts.
The car I am driving was paid for with cash, or a loan that was no more than three years, and I sure didn’t lease!
I am contributing at least 10% of my gross salary to a retirement plan at work, or I am saving at least that much in an IRA and/or regular taxable account.
I have a long-term asset allocation plan for my retirement investments, and once a year I check to see if I need to do any rebalancing to stay on target with my allocation goals.
I have term life insurance to provide protection to those who are dependent on my income.
I have a will, a trust, an advance directive (living will), and have appointed someone to be my health care proxy.
So how did you do?
If you answered yes to every item, congratulations. If you are working on improving on a few items, I say congratulations as well.
As long as you are comitted to truly creating financial security, I applaud you. If that means you are paying down your credit card balances, or are building up your emergency fun with automated payments, that’s more than fine. You are on your way!
But if you found yourself saying No to any of those questions, and you’re not working on moving to Yes, then I want you to stand in your truth. No matter how good you feel, you have some work to do before you can honestly know what you are on solid financial ground.