What happens when you lose your job and run out of money? You stop paying your mortgage or rent, credit card bills and car payments.
Yesterday’s news that credit delinquencies hit a new high wasn’t surprising. The American Bankers Association (ABA) released a report showing that delinquencies on consumer credit rose to 3.23 percent, a record number. The report blames the more than 6 million jobs that have been lost, including 2 million jobs in the first three months of 2009.
ABA economist James Chessen said in a press release that “The number one driver of delinquencies is job loss. When people lose their jobs, they can’t pay their bills. Delinquencies won’t improve until companies start hiring again and we see a significant economic turnaround.”
Unfortunately, Chessen added that job growth is not likely to improve in the foreseeable future. “However, many people are taking greater control of their finances by cutting spending, lowering debt and saving more money.”
It’s true that the household savings rate has climbed to 6.9 percent, the highest point in the last 15 years. Americans are saving at a furious rate. And, those that have cash are starting to pay down debt.
New tools are being introduced to help consumers pay down their debt even faster. Equifax, one of the three main credit reporting bureaus, launches Debt Wise this week. Debt Wise uses your Social Security number to pull all of your debts into one list. You then add information about the interest rate you’re paying and the term of the loan. Debt Wise aggrates the information and creates a “fast pay plan” that will tell you which bills to pay first in order to save yourself months or years of payments.
My team and I have been playing with Debt Wise over the past week, and the product is good, if a little pricey (more on that in a moment). One member of my team, has a load of school loans and found that if she follows Debt Wise’s advice, she’ll pay off her loan sooner, and save herself thousands of dollars in interest - which is great except she doesn’t earn enough to make the size payments Debt Wise suggests.
Mostly, Debt Wise’s suggestions are the same common-sense advice tips I’ve given debt-laden consumers for years: Pay off your highest interest rate, non-deductible debt first, throwing whatever extra you have at it until it’s paid off. Then take all of that cash and throw it at the non-deductible debt with the next highest interest rate. And so on.
Debt Wise does the calculations for you, which is good if you’re a little lazy or math-challenged. But is it worth $14.95 per month? The price tag assumes you’ll save thousands of dollars by following the program’s advice, so from that perspective, there’s some value. It also includes access to your FICO score (always helpful) and four copies of your credit report, which you’d otherwise pay for. The program includes automatic tracking of your payment progress, and $25,000 in identity theft insurance. What doesn’t it have? The ability to freeze (or lock) your Equifax credit history.
Debt Wise would frankly be a waste for someone like me who doesn’t carry any debt besides a mortgage and a home equity line of credit. You can’t include any accounts with balances that are currently active. The program only works with accounts where the balances don’t increase. It also isn’t for those who have one big debt - if that’s you, you know what you have to do.
But if you have a handful of credit cards, school loans and other debts you want to pay off, it might be just the thing to help you save money and improve your credit history and score at the same time.
If you’ve found other tools on the web that help you pay down your debt, please send me a note or leave a comment here.
