Financial Imbalance

According to the Federal Reserve, total consumer revolving credit, including credit-card debt, stood at nearly $974 billion last November, up from some $770 billion in 2003. Meanwhile, a January 2009 report by the American Bankers Association found that bank-issued credit-card delinquencies hit their highest level in five years during the second quarter of 2008. And consumer bankruptcy filings increased by nearly 33% in 2008, according to the American Bankruptcy Institute and the National Bankruptcy Research Center.

“We’re in a different time than we’ve been in any of our living memories,” says Gerri Detweiler, credit advisor for Credit.com. “The level of debt that consumers owe is much higher than it’s been in the past, and there’s this big gap in [debt] solutions.”

Fortunately, the first steps toward a debt-free life are some of the easiest. Cut down on discretionary expenses such as dining out or shopping. Then create a budget and stick to it. Another helpful move: asking lenders if they can offer better terms on rates or minimum payments.

Here are four more ways to help you reduce commonly-held debt.

Mortgage

If your mortgage payment is getting hard to afford, contact your lender to see if you can negotiate a better rate or lower monthly payments. If you’re in real dire straits, see if your lender is participating in Hope for Homeowners, a government-run program that encourages lenders to refinance mortgages of borrowers who are at risk of losing their homes. More than 200 lenders have signed up since the program began on Oct. 1, according to the Department of Housing and Urban Development (HUD).

Credit-Card Debt

Interest rates on credit cards can run as high as 33% for cardholders who are late with a payment or have a low credit score, says Curtis Arnold, founder of CardRatings.com.

To tackle this debt, pay more than the monthly minimum requirement and focus on paying off high-interest-rate cards first, says Sheryl Garrett, a fee-only certified financial planner.

Another way to rein in costs: Take advantage of 0% balance transfer offers or low introductory APRs. Just be sure to read the fine print. Currently, the average fee for a balance transfer is 3% or 4% of the transfer amount which can equal up to $120, says Arnold. (Some lenders don’t even have caps.) Also, make sure you can pay off the balance before the introductory period expires and the high rates kick back in.

Private Student Loans

According to the College Board, the average undergraduate student left school with more than $12,000 in debt during the 2006-07 academic year.

Just like credit-card debt, it’s best to tackle higher-interest loans, namely federal student loans issued before July 2006 and most private student loans, first. Both carry variable interest rates that can rise and fall each month. Last year, rates on private loans, for example, averaged 14%, says Mark Kantrowitz, founder of FinAid.org.

One solution is to consolidate all your private loans. However, since consolidation loans currently carry variable interest rates it would only make sense to do so if you have a good credit score. Otherwise, you could get hit with an even higher rate. One problem with these consolidation loans: They’re hard to find. Currently, only four lenders — including Wells Fargo and Student Loan Network — offer them.

Medical Debt

If you’re drowning in medical debt, make sure your insurer is paying its share of expenses. Often times, the doctor will use a certain code for the services rendered that the insurance company can’t identify, says Garrett. Instead of rectifying the issue, the insurer just doesn’t pay.“These mistakes happen way [too] often,” she says.

Next, speak with your medical provider. To ensure they get paid, medical providers are often open to working out payment plans. Before speaking with your provider, figure out how much you can afford to pay each month, then pitch that amount to the doctor’s billing department, says Garrett. In addition, many hospitals have government funds to help patients who can’t afford their medical care, and independent nonprofits also provide financial assistance.

It’s been a tough year for the richest people in the world. Last year there were 1,125 billionaires. This year there are just 793 people rich enough to make our list.

The world has become a wealth wasteland.

Like the rest of us, the richest people in the world have endured a financial disaster over the past year. Today there are 793 people on our list of the World’s Billionaires, a 30% decline from a year ago.

Of the 1,125 billionaires who made last year’s ranking, 373 fell off the list—355 from declining fortunes and 18 who died. There are 38 newcomers, plus three moguls who returned to the list after regaining their 10-figure fortunes. It is the first time since 2003 that the world has had a net loss in the number of billionaires.

The world’s richest are also a lot poorer. Their collective net worth is $2.4 trillion, down $2 trillion from a year ago. Their average net worth fell 23% to $3 billion. The last time the average was that low was in 2003.

Bill Gates lost $18 billion but regained his title as the world’s richest man. Warren Buffett, last year’s No. 1, saw his fortune decline $25 billion as shares of Berkshire Hathaway (BRK) fell nearly 50% in 12 months, but he still managed to slip just one spot to No. 2. Mexican telecom titan Carlos Slim Helú also lost $25 billion and dropped one spot to No. 3.

It was hard to avoid the carnage, whether you were in stocks, commodities, real estate or technology. Even people running profitable businesses were hammered by frozen credit markets, weak consumer spending or declining currencies.

The biggest loser in the world this year, by dollars, was last year’s biggest gainer. India’s Anil Ambani lost $32 billion—76% of his fortune—as shares of his Reliance Communications, Reliance Power and Reliance Capital all collapsed.

Ambani is one of 24 Indian billionaires, all but one of whom are poorer than a year ago. Another 29 Indians lost their billionaire status entirely as India’s stock market tumbled 44% in the past year and the Indian rupee depreciated 18% against the dollar. It is no longer the top spot in Asia for billionaires, ceding that title to China, which has 28.

Russia became the epicenter of the world’s commodities bust, dropping 55 billionaires—two-thirds of its 2008 crop. Among them: Dmitry Pumpyansky, an industrialist from the resource-rich Ural mountain region, who lost $5 billion as shares of his pipe producer, TMK, sank 84%. Also gone is Vasily Anisimov, father of Moscow’s Paris Hilton, Anna Anisimova, who lost $3.2 billion as the value of his Metalloinvest Holding, one of Russia’s largest ore mining and processing firms, fell along with his real estate holdings.

Twelve months ago Moscow overtook New York as the billionaire capital of the world, with 74 tycoons to New York’s 71. Today there are 27 in Moscow and 55 in New York.

After slipping in recent years, the U.S. is regaining its dominance as a repository of wealth. Americans account for 44% of the money and 45% of the list’s slots, up seven and three percentage points from last year, respectively. Still, it has 110 fewer billionaires than a year ago.

Those with ties to Wall Street were particularly hard hit. Former head of AIG (AIG) Maurice (Hank) Greenberg saw his $1.9 billion fortune nearly wiped out after the insurance behemoth had to be bailed out by the U.S. government. Today Greenberg is worth less than $100 million. Former Citigroup © Chairman Sandy Weill also falls from the ranks.

Last year there were 39 American billionaire hedge fund managers; this year there are 28. Twelve American private equity tycoons dropped out of the billionaire ranks.
Blackstone Group’s (BX) Stephen Schwarzman, who lost $4 billion, and Kohlberg Kravis & Roberts’ Henry Kravis, who lost $2.5 billion, retain their billionaire status despite their weaker fortunes.

Worldwide, 80 of the 355 drop-offs from last year’s list had fortunes derived from finance or investments.

While 656 billionaires lost money in the past year, 44 added to their fortunes. Those who made money did so by catering to budget-conscious consumers (discount retailer Uniqlo’s Tadashi Yanai), predicting the crash (investor John Paulson) or cashing out in the nick of time (Cirque du Soleil’s Guy Laliberte).

So is there anywhere one can still make a fortune these days? The 38 newcomers offer a few clues. Among the more notable new billionaires are Mexican Joaquín Guzmán Loera, one of the biggest suppliers of cocaine to the U.S.; Wang Chuanfu of China, whose BYD Co. began selling electric cars in December, and American John Paul Dejoria, who got the world clean with his Paul Mitchell shampoos and sloppy with his Patrón Tequila.

The stats are scary. And debt is nothing new to most of us. In fact, the losses in the stock market and falling home values combined was more than most people’s salary last year according to Standard & Poor’s.

1. Get a grip

Determine whether your debt problem is run of the mill or out of control. One signal that you have too much debt is that you borrow from one credit card to pay off another credit card. Another bad sign, if you can only make minimum payments on your credit card. Or if you don’t know how much total debt you have. If the above describes you—get help.

2. Prioritize

Paying it down requires making it a priority. If you have credit card debt, pay off the one with the highest interest rate first. Always pay more than the minimum payment. You have to cancel any spending that isn’t essential and put it towards paying down your credit card debt or debt. Practice some tough love: You have special channels beyond basic cable – get rid of it. Re-evaluate your memberships. If you only hit the gym once a year, get out of that contract now.

3. Don’t pay when you don’t have to

Stop the hemorrhaging of money. Get out of paying “courtesy overdraft fees” of as much as $20 to $35 by linking your savings account to your checking account. Better yet, don’t write a check for more than your balance. These days you can even check your balance from your cell phone. Out of network ATM fees are brutal these days, with some banks charging three bucks for the privilege of getting access to your own money. Use a bank with a large network.

The 2009 RRSP season could be a tough sell for investors who got scorched last year during the global meltdown on financial markets.

However, a contribution to a registered retirement savings plan – whether it’s in equities, mutual funds, guaranteed investment certificates or whatever – will still yield a welcome tax refund.

And while you’re at it, ask yourself if you could have done anything different last year while the losses were deepening, simply by being a better investor.
Not only would you benefit, but your financial adviser would likely appreciate sitting across from somebody who doesn’t just shovel over cash without a murmur.
“I prefer having someone who knows and understands and has an appreciation for what is going on – that client is a better client,” says Adrian Mastracci, portfolio manager at KCM Wealth Management in Vancouver.

“That client is going to be trying to get the best performance, and doesn’t want to jump on the bandwagon. And he or she knows that this is a long-term affair.”
Mastracci added that he’s noticed investors are certainly better educated in one key area than they were a year ago – understanding that the market is risky.
“Everybody is aware of taking a haircut.”

An excellent resource for the novice investor is the Ontario Securities Commission where you will find investor information and the Investor Education Fund .
“Just giving up is not an option,” says Tom Hamza, president of the Investor Education Fund.

Investing, Hamza says, “isn’t that intimidating; you just have to understand some basic things and have a framework to advance with, and you will be OK.”
The Investor Education Fund website offers explanations in simple language about all types of investments and how to shelter them from tax through RRSPs and the new tax-free savings accounts.

For example, the section on mutual funds describes what a mutual fund is, what it will cost, how to buy one and whether they might be a good choice.
OSC resources offer a wealth of information for the novice – and also for investors who regard themselves as experienced.

A segment on questions to ask when choosing a financial adviser is particularly helpful because many people don’t know much about shopping for one.
“Working with your financial adviser is actually something that has come to the forefront in the financial crisis, just because there is more of a focus on maximizing the value of that investor relationship,” said Perry Quinton, manager of investor communications at the OSC.

“When markets are going up, it’s pretty easy to sit back and let someone else do it.”
Questions to ask include whether the adviser is registered with securities regulators, which provides an assurance of basic qualifications.

Asking how an adviser is paid is also apt – and it’s not like asking your neighbor at a dinner party how much she earns.

“You’re the one paying it so you need to know how you’re paying it,” said Quinton.
Some are paid by salary so the cost of their advice is built into their products. Some receive commissions on what they sell, while others charge a fee based on your portfolio.

For investors who want to get serious, there is the Canadian Securities Course.
Investment professionals, including those seeking a brokerage or mutual funds licence, have to pass this course.

The CSC, which costs about $900, delves into how to analyze corporate financial statements and gives the lowdown on all financial instruments, including structured products and derivatives.

Whichever route you take, you should feel a lot more in control by not leaving everything up to the adviser.

“I really believe investing is a lifestyle choice, and that means there is work involved,” said John Stephenson, portfolio manager at First Asset Funds.
“And for many people that is offputting, and perhaps life is complicated and for that reason people would rather just forget about it,” Stephenson said.
“While you may rely on your investment adviser, you still have an obligation to understand what is in your statement, what he’s doing at least in the broadest terms … and you’d better be pretty comfortable that this guy knows what he’s doing.”

Improving your credit score takes some elbow grease. Ruining it, on the other hand, is a piece of cake.

Just a few false moves, and in no time, your credit reputation starts to suffer. It doesn’t even need to be something extreme, either. Just a late bill payment here or a retail splurge there is all it takes. Woe to the consumers who make a few missteps in a row and find themselves slogging through suboptimal loans (high rates, high fees) the next time they’re shopping for credit.

The surest way to be blacklisted is to break the rules that matter most to the very folks measuring your creditworthiness. Here are the five key gotchas and some ways to stay in the lending world’s good graces.

1. Forget to put the check in the mail. Hey, it happens — you’re on the lido deck during your family getaway, and — doh! — you remember that the credit card payment was due three days ago. No big whoop, right?

Actually, you are right … to a point. Credit card companies actually do have a heart (or at least offer a little leeway), and they’re willing to let a few missteps slide, particularly in how they treat 30- and 60-day late payments that are brought up to date right away.

Still, if you make a habit of it, prepare for some brutal consequences, since one-third of your credit score — the most popular being the FICO score from Fair Isaac — is based on your bill-paying habits. According to Credit.com, a single 90-day-late payment is as damaging as a bankruptcy filing, a tax lien, a collection, a judgment, or a repossession.

The lesson here is simple: Pay your bills on time. Don’t skip any bills — and certainly not your rent or your mortgage payment. Send in just the minimum amount due, if you have to, but send it in. If you know your payment will be late, call your lender and explain, and he or she might give you a free pass, just this once.

2. Spend up to your credit limit. You’ve earned it, right? After all, a bunch of bankers in suits have deemed you worthy of a spending limit of $5,000, $10,000, $20,000, or maybe even $40,000 or more on your credit cards. Financing a Bugatti has never seemed so within reach.

Back to earth, Trump wannabe. Sure, you might have a $15,000 credit limit on your card, but that doesn’t mean that’s how much you can afford to spend. Even a temporary splurge could turn into long-term debt trouble if you’re not careful. Just ask Michael Jackson.

Keep those cards in your pockets and avoid coming anywhere near maxing out your credit cards. The measure of debt to your credit limits counts for a whopping 30% of your overall credit score. Our advice is to keep your debt to below 10% of your limit — and you are paying the bill off every month, right? If you can’t handle that, keep in mind that around 30% is “acceptable” to the banking world, and that red flags start waving when your debt-to-available-credit ratio exceeds 50%.

3. Dismiss your youthful indulgences. You may want to deny your past — that Limited Express charge card you used so often during college was so long ago.

But that’s the point. The longer your borrowing history — particularly if you’ve been a responsible, card-carrying citizen — the better your score. Too many people cancel old credit cards when spring cleaning their wallet, and then are shocked when it affects their credit score.

The length of time you’ve spent in the system determines 15% of your overall score, not to mention the impact of closing lines of available credit that factor into your debt-to-credit ratio mentioned above.

Celebrate and retain your credit history. If you’re going to cancel some credit cards, start with newer accounts, since the old ones help establish your long and illustrious credit record.

4. Sign up for a better card. And then sign up for an even better one. Given the number of credit card solicitations mailed out each year, it seems that everyone is in line to win the plastic popularity contest. Playing the field is tempting, and sometimes you should. If you’re trying to pay off debts, shopping around for the best deal makes sense. Most of the time, though, you should stick with what’s in your wallet.

Lenders like loyalty. Think about it: If you lent someone money, you’d probably get nervous if that person started asking all of his or her other friends for a loaner, too. Lenders check your credit file regularly to see whether you’re dating around. (New credit applications affect 10% of your credit score.) If they see you applying for lots of credit at once, they tighten their purse strings and fire a few warning shots at your credit score.

Also keep in mind that every line of credit you apply for will stay on your record for at least seven years, even if the account is open only for a day or two. So take great care when opening and closing accounts.

5. Grease a few palms to get ahead. Dressing to impress and picking up the happy-hour tab are classic tools to get ahead in some circles. So you may wonder whether there’s a way to buy your way to better credit.

There’s something to be said for variety. Those with perfect credit scores have a demonstrated history with a variety of loans — such as installment loans, like a car loan or mortgage, and revolving debt, such as your workaday credit card. Types of loans affect 10% of your overall score.

The problem with trying to quickly add variety to your borrowing portfolio is that doing so may put you in a worse situation than where you began. Remember, when you apply for loans, you’ll experience a short-term drop in your score. And then there’s the money — paying interest or annual fees or other costs of borrowing just to add some cards to your credit portfolio.

Don’t borrow money just to boost your score, and for heaven’s sake, don’t believe anyone who tells you that you have to carry a balance on your cards to prove your creditworthiness. That’s bunk.

There are just two things that are guaranteed to boost your credit score:

1. Time. (Remember, most bad marks fall off your report after seven years.)

2. The proper use of credit. (Responsible bill-paying habits matter most to those judging you.)