Crunch
There’s a real credit crunch now that lenders stand to lose big bucks as a result of risky loans. How will it affect you?
Personally…
Take a good look at your credit card statements. Your “teaser” rates may have expired. You may notice that your interest rates (APR’s) have changed, that your credit limits may have been lowered, that you were charged late fees for paying on the due date but after 1 or 5 P.M. One or more accounts may even have been cancelled. All this, despite your history of using credit responsibly and paying your bills on time, even if it’s just minimum payments due, and, to add insult to injury, without notice!
Do you remember throwing away any small-print notices from your credit card lenders? Or any letters advising you that the terms of your account have been modified? Like privacy disclosures, these notices tend to be overlooked or misunderstood. Always read your mail! If you get something that you don’t understand, or don’t want to bother to read, ask someone to do it for you.
Don’t hesitate to call customer service to discuss any action taken on your accounts. Ask for an explanation and listen carefully, even if you think the action was unjustified. But don’t be satisfied with the first response. Ask for a supervisor. Be assertive without being belligerent. And don’t be afraid to ask that the action be reversed or modified. Your history will be reviewed. Your late charge could be credited back to your account as a courtesy, and you might just qualify for a lower interest rate.
It’s a good idea to check with the credit department even if your credit history is not perfect, or if you expect some difficulties in the near future, especially if you are considering bankruptcy or facing foreclosure. While some credit departments don’t seem to understand that some payment is better than none, others may be disposed to settling with a borrower or arranging for more realistic payment terms. If your lender is not, however, you should get your attorney involved.
It may not be the right time to finance a big purchase, whether it’s a new kitchen or a new house. Lending standards for mortgages and lines of credit collateralized by your residence or other real estate have been severely tightened. Loans available to people whose income cannot be corroborated by wage statements or tax returns (“no doc” or “stated income” loans) have all but disappeared even if the property offered as security has, or had, substantial market value. There are fewer buyers now because they can’t get mortgages and the ones out there who can qualify can’t spend as much as before. It is a good time to buy if you have cash to spend, and are willing to invest in this volatile economy.
Professionally…
This may be a good time to work on making your business more efficient rather than expanding. Small businesses, especially in the arts, are vulnerable. Your students, customers and clients are facing the same economy that you are, and they may be slow to pay their bills. There is less public money and private funding for the arts, so grants and other support may be more competitive. Use your profits conservatively: instead of taking more space, concentrate on producing more income from your existing space; hire a professional fund-raiser; be prepared to offer scholarships or offer reduced-fee packages to existing students.
Speak to your lawyer and your accountant about how to protect yourself personally and professionally from an economic downturn.