Yes, the jobs report on Friday was strong, along with wage growth. Does this mean we’re all doing well? Making more than we are spending, saving the excess and watching our 401k and IRAs grow? For some, the answer is yes. For others, it’s not that easy. On October 29th, The Wall Street Journal reported that Capital One and Discover are trimming spending limits and closing out accounts that have not been used for a sustained period. The reasoning is clear:

Capital One and Discover are gauges of many Americans’ ability to handle debt. Discover generally doesn’t market to affluent customers, and Capital One has a large number of customers with less-than-pristine credit scores, making both companies a window into a part of the economy that is often the first to show cracks. Some 33% of Capital One’s domestic card balances, for example, are owed by subprime borrowers, according to the bank.

Their concern is that when the economy turns sour, they don’t want to be caught holding the bag on borrowers running up their credit limit and then defaulting. Closing dormant accounts is precisely to avoid allowing customers to use those accounts when the going gets tough. Do you see where this is going? When the last recession hit, it took the banks until late 2009 and 2010 to slash available credit card debt when the economy crashed in 2008. When it happens the next time, you can bet the credit will be slashed much, much faster. In fact, it’s already happening!

There are several implications here. First, if you have cards tucked away with zero balances and are planning to save them for a rainy day , it probably won’t work. You may as well assume it’s already raining and use them, or you’ll lose them. The broader point is that you should not rely on available credit as a cash cushion – you need cash in bank and savings. Lastly, you will never save anything if you’re carrying $30,000+ in credit card debt, paying $6,000+ per month in interest and in the credit card trap. If you are wondering if this applies to you,  here’s the simple test. If you have credit card debt greater than $20,000, the balances have not gone down in the last 6 months, and you are living check-to-check without any savings growth – then you are in the credit card trap – and may be a “Debt Turkey!”

There are great solutions to rid yourself of your debt. Debt Resolution,  which is not Debt Settlement that you hear advertised on radio and tv – is our solution outside of bankruptcy. It’s twice the speed and half the cost of Debt Settlement and most importantly – it works! The goal is to eliminate the debt at the least cost and in the quickest manner. The optimal course may be Debt Resolution, or the advantages of a Chapter 7 or Chapter 13 solution may prove better. You need to evaluate your options to select the best course. One thing for certain, doing nothing is a mistake and you can bank on this one – when the economy turns sour, the available credit you think you have, will vanish like a _____ in the wind. (Movie fans will know, that’s a line from Shawshank Redemption).

Want to learn your options? – attend our FREE Seminar this Wednesday evening, “I’d Rather Eat Turkey Than Be a Debt Turkey!”

Have a great week,

Ken