As mentioned in my earlier piece Four Horses Of The U.S. Debt Apocalypse, understanding how the debt systems are connected means that you can not only survive the looming threat crisis, but also take steps to avoid the fallout and come out ahead.
Here are the five practical actions you can take now to shore up your own finances. I would classify these as actions for the risk-averse. Using these steps, you can beat banks at their own game, be proactively defensive and save money, regardless of rate hikes.
Step 1: Strive to be more liquid by finessing your own personal cash-to-debt ratio. Free up any cash that can be used immediately if needed. Consider putting it into credit unions or accounts that have slightly higher rates than the big banks and that don’t charge fees.
Check out bankrate.com, for places that allow you to keep low, no-fee balances, are FDIC insured and offer more than 1% per year. That 1% may sound tiny, but you’re going for safety and liquidity here.
Step 2: Consider a balance transfer from an existing credit card to a new credit card. Citigroup (and others) is urging more people to take out more cards. You will notice new balance transfer offers on your accounts at zero interest rates while this happens.
Keep in mind I am not suggesting you take on more debt. But transferring balances now is a good way to save on interest payments during this period of credit “generosity” by the banks.
Step 3: Consider purchasing a lower-cost car with better gas mileage. Even if you’re not in a subprime loan, take advantage of the current excess of credit. Look at your finances and necessities — only you can decide if this is the right move for you.
But consider getting into a lower-cost car with better gas mileage. You can get in at a relatively low interest rate while companies are pushing cheap credit.
Step 4: Call your insurance company to get a lower payment. There aren’t many options to take in corporate areas. The oil and gas sector is still causing problems. I wouldn’t touch the tech sector right now.
Consider calling your health care insurance company to see if they can work with you on a slightly lower payment — they still have cheap funding now, and it does not hurt to ask.
Step 5: Call your mortgage lender to change your escrow payment schedule. Although the mortgage loan market is relatively stable now, you might find your property taxes rising. In California, I personally just had a huge bump in my property assessments, which meant a demand for more escrow money monthly.
If this happens to you, get your lender on the phone and ask about spreading out the extra payments over five years instead of one year. (I did this, and it saved me $200 a month.) That’s money in your pocket, but you must ask or it won’t happen.
The next debt crisis will center on the combinations of financial concerns (among other things). Banks have bulked up their own cash reserves — courtesy of central banks — but they didn’t offer more reasonable terms to their smaller customers. Instead, they piled debt on them.
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This story originally appeared in the Daily Reckoning