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Monday, 25 May 2009

Jim's Thought of the Day You think it, I say it

Having Good Credit - Does it Matter?

Two years ago if I told you that I thought letting my house go back to the bank and trying to settle all of my credit card debt would be my best option, you'd have told me I'm crazy. Today, not only would you not refute it, you would probably encourage it. More and more we hear of people taking this route not only due to lost jobs and lack of income, but also because it makes good financial sense. When home values have dropped over 50% and the entire economy is in the tank, can creditors really view these actions as a detriment to a person's financial responsibility?

As tides of people have lost or 'given back' their homes to the banks in foreclosure, the average credit score in the country continues to drop. Frankly, the state's and country's credit score are dropping as well. So does this mean that the hundreds of thousands of families (or millions) in the country will suffer with their credit for seven years as a result?

I have to believe that the answer to both of those questions is no. And sadly, I have to think that it makes sense for families to take this option in an effort to become financially sound. The economy in this country has taken a hit. It will continue to decline, contrary to the belief of the current administration. The more the government puts it's hand in private business, the less the private business can make a comeback. The less say owner's of business has, the higher the probability of failure. Look, we put billions into Chrysler only to have it file bankruptcy. Bankruptcy which of course is the same option as faced by many households across the country (even after the bailouts issued to those in foreclosure's grasp), which again in the case of Chrysler, makes sense. Nonetheless, the government got too involved. Truly, bankruptcy would have been the best option and should have happened before the taxpayers lost their shirts on it. Same with GM. In a capitalistic society, if a business is going to make it, it will do so on it's own. If GM has models that will survive, at the very least those models and brands will be picked up by someone better able to sell them. The government doesn't need to come in and change leadership and infuse money in it. So all this having been said, when the country, the states and the large corporate entities all have to 'modify' their financial standings by not paying back debtors, settling with creditors, and giving back property - who's to say that it will be such a downfall to the private citizen?

The bottom line is this - Cash is King and it will be for years to come. The faster and easier people can get to a point where they are cash heavy, the better. If that means settling debts for 50% of their original amount, letting homes go back to the lenders, or declaring bankruptcy, then that's just the way it is. With the way the current administration is bleeding money, it would be better monetarily if all the citizens were issued a "clean slate" and the banks made whole, than the way the government is handing out money to the wrong people. Credit will not be flowing the way it did, probably ever; and for a very long time if so. FICO's and credit history will not matter when you have cash in hand anyway. This may just be a big wake up call to the country and even the world - Don't over-extend yourself in the first place, and all will be well!

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