Cars, Housing Debt and Cancelled Credit Card Affects on FICO Scores

Lets face it, debt is a problem in this Country, State and local community of citizens of Snohomish and vicinity.  It’s all around us.  We live in debt.    I have debt.   One of the goals I have is to eliminate the debt and be debt free.   It’s going to be tough but I’m determined to do it.   To take a term from financial talk show host, Dave Ramsey, I don’t want to be normal because “normal is broke.”

This “Great Recession” as some have coined it has been exceptionally difficult on people.    The housing and credit bubble crisis caused it and it has led to job loss and has taken a tremendous toll on families in a variety of ways.    For people to presume that the housing market, after taking several years to build to a point where it blew up in our faces locally after peak prices were reached in the late Fall of 2007, will turn around on a dime is, at best, not realistic.

Being in the escrow business has afforded an incredible lens into how irresponsible people were in using their home as a piggy bank to buy cars, boats, 5th-wheels, vacations, “investment properties “  and other luxuries that were obtained not by earned income but by a false illusion that my home would appreciate at 15-20% per annum based upon economic fundamentals.

Heck, even local Bankers thought we were in a new “paradigm” as one of the executives at my bank discussed with me.    Honestly, I couldn’t believe what I heard.   It mystified me how in the world a Banker couldn’t see what mortgages were buying up the inventory of the developers they were lending to.    Everyone had the proverbial Cool-aid stains on their lips.   Today my bank’s stock has wiped out many stockholders and I’m not talking about Frontier Bank which is in a league of their own in having a mother load of local and regional builders and developers that they lent money to and have subsequently lost millions on.  This is not slamming Frontier.  It’s just a fact.

The idea that nobody “could have seen this coming, ” which is a quote I’ve read from prominent Bankers is just flat out false.   I started to get very worried and said so to anyone that would listen back in December of 2006.   I mean seriously.   In 2006, when 71% of all the purchase transactions our office closed were 100% financed, was that not a red flag?  We’re a small fry in the real estate business.  Just think what all the title companies were closing in communities all across the country.  Is anyone understanding how enormous the situation was?  Staggering.

Back to the topic at hand:

A great article today on eliminating consumer debt and it’s affect on FICO scores is at a great blog called “Get Rich Slowly.” It should be a daily read or at least once a week.

From my observations the single most destructive consumer credit purchase on household debt:  buying a car and financing it.

The cash for clunkers program certainly spurred sales but it showed government waste at taxpayers expense at it’s best.  The program was fraught with problems and it put people INTO more debt.   So, you bought that new car and traded in a older but running vehicle that may have been owned outright?   Was that the best financial move?  Now you have a $300 payment or more over probably 5-6 years not including operating costs and insurance.   Good move?   Maybe for a few that paid cash, but I’m seeing more and more cars pop up on Craigslist that are of 2009 vintage.   How many were bought during cash for clunkers?  We’ll never know, but I’m sure there are plenty.

I still drive my paid off 16 year old Villager with 227,000+ miles on it.   Do I wish I could drive something a bit nicer?  Yes.   It’s probably time to retire the old car but by being frugal and socking away savings it’s saved me thousands in interest if I financed a car at today’s prices.   It boggles my mind that I see guys literally trade in a nice truck and drive out with a brand new $45,000 truck.    What are payment on financing $30,000 at 8% ?  I don’t need to know.