As Barack Obama and John McCain prepare to make their big announcements, common sense tells me I should be focusing on the veepstakes right now. Yet, while I can't wait to hear about their exciting choices, I find myself more focused on whether my local bank will be solvent next time I need to withdraw 75 bucks to fill up my tank.
What's got me worried? Those headlines! Reading any newspaper on a daily basis -- and I am not referring to the Soduku challenge or your daily horoscope -- is enough to cripple you with fear. By the time you scan the front-page headlines and skim the financial section, where the really bad news is blared in excruciating detail, you're running to the refrigerator for something cold to drink.
U.S. banks are posting record-breaking quarterly losses. How will these massive losses along with the record-high inflation start to affect my savings and plans to retire before I celebrate my 100th birthday? And will someone please explain to me, slowly and clearly, what write downs are, because, frankly, all I know is that they're capable of destroying our ability to live life as we know it.
It's hard to read the major newspapers and not discover that another major American bank has been placed in intensive care. With four banks already dead and an additional four or five struggling to stay alive amidst more bad news from the mortgage crisis, it's time for folks like you and me to get serious about reducing and consolidating our debts. And it's high time we call on the credit card companies for help in reducing the escalating interest rates.
As our summer months come to an end, a perfect storm is forming, an economic tsunami that will wash us all away -- the working poor, the middle class and the affluent alike. We are all part of an economy that is still faltering by every measure, including a credit crisis that threatens to explode right before the holiday season gets under full swing.
According to the Center for Responsible Lending (CRL), nearly 45 million homes not facing foreclosure will decline in value by an estimated $233 billion as subprime foreclosures lower the prices of surrounding homes. Meanwhile, the fear of overwhelming credit card debt is driving many Americans to hand their equity back to mortgage lenders in the form of "cash-out" refinances to repay ("consolidate") short-term debts such as credit card balances. And if people haven't fallen prey to predatory mortgage lending and its ill effects, the CRL warns, then there are always payday loans, car title loans, tax refund anticipation loans and other scams.
We need to listen to the experts and follow some simple rules. The first place we must start is with our personal debt. Who do we owe every month, and what's the interest payment on that debt? Can we reduce the interest payments?
Rule No. 1: Reorganize your debt. If you own a home, it's time to talk with your mortgage lending institution. By consolidating your high interest-rate debt, you could save cash on total interest payments each month. And you can put this savings to good use by reducing your credit card debt.
Figure out whether you can get a cheaper mortgage by refinancing your loan. Some mortgage companies are luring back old customers to refinance by promising to pay all closing costs. Check the details and ask questions before signing into another agreement.
Rule No. 2: Get rid of those credit cards. It's time to consider your credit cards as frozen assets, literally. Place all but one of them in a plastic container filled with water. Place the container in the freezer. Keep it there as you pay down the balance on the cards. When the balance on a card reaches zero, thaw the card and then cut it into a tiny pieces. Have a party. You've earned the celebration. In the meantime, talk with the credit card company that issued the lone card now in your wallet and renegotiate a payment plan that allows you to put aside some extra cash for those rainy days ahead.
Rule No. 3: Drive less. And buy smaller, fuel-efficient cars. A friend just returned from a two-week vacation in France, where she saw only two SUVs, and they were smallish ones driven by foreigners on holiday. I plan to sell my beloved whale of an SUV before the used-car market gets flooded with them, since gas prices aren't going down anytime soon.
Rule No. 4: Conserve energy. Like driving those big cars, it's time we figure out how to make our homes more energy efficient before old-man winter cranks up our fuel bill. This summer I cleaned up my basement and had all my windows recaulked and cleaned for the winter. In addition to purchasing energy-efficient light bulbs, turning my thermostat up to 78 and sleeping with my ceiling fan on, I know there are more steps I need to take to conserve energy and leave a smaller footprint. The truth is, I look forward to living a cleaner, greener lifestyle in the months and years ahead.
There's no guarantee any of this advice will help keep us afloat or provide the necessary financial cushion to survive the worst of the banking/mortgage credit crisis. But I, for one, am starting with the four simple rules.
Consolidate your debt. Get rid of all but one credit card. Drive less and drive smart. Conserve energy.
If all else fails, I can always rely on something my grandmother taught me: Don't let your eyes like what your wallet can't afford.
Donna Brazile is a political commentator on CNN, ABC and NPR; contributing columnist to Roll Call, the newspaper of Capitol Hill; and former campaign manager for Al Gore.
