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Is credit card debt the new emergency fund?

SALT LAKE CITY Gwenyfar Rohler manages her familys bookstore in Wilmington, NC, and wishes she had an emergency fund.

Im going to have to walk if the car breaks down, Rohler says. If my dogs have an emergency veterinary bill, there is no way to meet it. It is just roulette at this point.

Changes in the book-selling industry and a down economy took its toll on Rohlers bookstore. It got worse when the bookstores building was condemned and Rohler had to find a new location in 2010. That was the last time Rohler, who is a freelance writer and radio personality, had an official paycheck from her business.

When it comes time to do payroll for the staff, sometimes I swipe the credit card through the machine if we are $400 short, she says. Then I am in that terrible game where I can make a minimum payment and then have to borrow back the money as soon as I pay it.

A new poll by, a Florida-based consumer financial services company, found that only 51 percent of Americans say they have more emergency savings than credit card debt. This is the least amount of savings has found since it started tracking the issue in 2011. The amount of people who have more credit card debt than emergency savings is 28 percent, while 17 percent say they have neither emergency savings nor credit card debt.

Emergency credit

Greg McBride, chief financial analyst at, says people are likely using credit cards as an emergency fund and this is a problem. Credit cards carry very high interest rates, he says, and card issuers are prone to cut credit limits at the time you would need them as a emergency fund such as at times of financial crisis.

This is why emergency savings are a better idea, he says: Money in the bank is yours, he says.

Yet, as the Bankrate poll shows, Americans are not saving as much as they should.

The household savings rates following the recession are still anemically low, McBride says. People need more savings than they have. They havent prioritized savings high enough.

McBride says, however, that people recognize the value of emergency funds more than before but stagnant income and high household expenses or even prolonged periods of unemployment and underemployment have kept savings down.

And sometimes people just are not aware of how they are spending their money.

I cant tell you how many times people say they have no money to save while holding a $400 phone in one hand and a $4 coffee in the other, he says.

Insuring emergencies

Jerry Mason, who teaches personal finance classes at Utah Valley University in Orem, Utah, likes emergency funds, but doesnt think they should be the first pillar of financial independence.

The first is having a good insurance package, Mason says. An emergency fund of $2,000 or $3,000 isnt going to help in big emergencies.

Insurance protects against huge losses, he says, and is a better expense than an emergency fund.

But an emergency fund comes along quickly as the next important thing to do, he adds.

One of the things Mason recommends is that people keep track of all their expenses check, credit, and debit purchases on their check logs.

That way they have one number to see how much they have, he says. Most people who use credit cards, however, dont do this. People need to focus on how much they have to spend.

He says the high credit card debt isnt a result of using them for emergencies as much as it is using credit cards for impulse buying although he says medical bills are huge problem for people as well.

Getting started

McBride says he thinks savings is often a personal choice: People need to make tough decisions in regard to building their savings, he says.

One way to get started, he says, is to set up direct deposit into dedicated savings accounts.

Rohler, unfortunately, does not have that luxury and is looking for the economy to improve and her business to grow. She does have one good thing going for her: an emergency fund that money cant buy.

When the bookstores building was condemned in 2010 her family had to put the inventory into storage and find a new location.

Nearly 300 people from the community came to help move the inventory into storage and then later about 200 showed up to help move the books into the new store location.

I know what it is like to be in the final scene of Its a Wonderful Life, Rohler says.

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6 On Your Side answers questions about getting out of debt

6 On Your Side Consumer Investigator

KNOXVILLE (WATE) – Household consumer debt is smothering many families in America today, especially here in East Tennessee.

Credit card bills, student loans, car payments, you name it, many people charge it.

This number is scary. The average household in America today owes $7,123 on credit card debt, according to the Federal Reserve. The debt goes higher when you add student loans.

We found out getting into debt is not hard.

Being a freshman in college, you get a credit card offer in the campus box. It was amazing, said Adam Jones.

Jones told a story that might be familiar to many. As a student at Lee University in Cleveland, Tenn., he says his debt started accumulating with student loans, and with credit cards so easy to get, he didnt worry about over spending. But it added to his burden.

Then when he got married, the debt really stated to soar.

After being married for five years, we had our first child. I didnt tell my wife no to anything. She got whatever she wanted with that first child. We had no idea what we were really accumulating, said Jones.

Their accumulation of debt was an astonishing $62,000.

When the recession hit, that was key. It was when we realized were paying a lot of money out of pocket, but not getting anywhere with our debt. So we looked into credit counseling.

Jones turned to ClearPoint Credit Counseling, a non-profit debt management agency that has offices in East Tennessee and around the mid-south.

On the average, if you pay only the minimum payment on your credit card, it could take up to 20 years to pay it off, said ClearPoint Counselor Marcy Frankel.

She says ClearPoint can help get that debt paid off in four to five years.

If youre in debt, you may be eligible for a debt management plan.

On Wednesday beginning at 4 pm, 6 On Your Side will be at the offices of ClearPoint Credit Counseling, where counselors will take your questions on how to manage debt and how you might get out of debt.

To ask a question, call 1-877-704-7943 from 4 pm to 6:30 pm

You can also join in on the conversation on social media using the hashtag #6OYSdebtfree.

Rocketrip Lets Your Boss Pay You For Saving Money While Traveling

Your boss says Youve got a budget of $300 a day for this trip.

You hear Go spend $300 dollars a day! Have fun!

Rocketrip, a company out of the latest Y-Combinator batch, wants to save companies money by paying the employee to find ways to travel on the cheap.

The idea behind Rocketrip: for every two dollars you save your company, you get paid one. If hotel rooms in the area are, say, $150 a night, and you opt to crash on a buddys couch instead, you just saved the company $150 bucks. You get a gift card for $75, and the company still saves $75. Find a promo code that saves you $10 off your rental car? Bam thats $5 bucks for you.

At least, the slightly simplified version. Its a bit more complicated than that in process, as theres a point system involved. Every $2 you save the company earns you 10 points, and every 10 points you earn = $1 on a gift card (be it Amazon, Best Buy, Target, J Crew, AmEx, or one of their other 20+ vendors). But to simplify it: you save the company $2, you get $1.

Why wouldnt a company just set a budget and forget it? Its all about the mindset. When you give people a dollar cap, they tend to spend that money like its someone elses. That becomes even more true as a company gets larger; when the budget theyve allotted you seems like a drop in the bucket, and is handed down from some mysterious budgeting department that for all you know is on the moon, its a bit easier to spend with disconnected disregard.

Reward people for saving money by giving them money, however, and (theoretically, at least), people will be frugal. Your company only keeps 50% of the savings, but thats better than saving nothing especially when you multiply those savings by however many hundreds or thousands of employees a large company might have.

Heres how it all works:

  • You tell Rocketrip where youre going, and what you need like, say, flights, hotel, and a car for a trip from SF to New York.
  • Rocketrip figures out how much a trip like that should cost, on average, based on realtime market data (read: they check the current prices) and the policies put in place by your company (Can a certain employee fly business class? SUV or compact car?).
  • You book your travel, and forward the receipts to Rocketrip.
  • Rocketrip calculates how much you saved the company, sendsem an invoice for half that amount, and gives you your points accordingly (remember: $2 saved = 10 points, 10 points = $1 on a gift card.)

Sound familiar? Depending on where youve worked before, it might! Ive heard of a few companies doing something similar most notably, Google. In fact, Rocketrip president Daniel Ruch openly admits that this is loosely based on what Google reportedly does internally. When a Google employee travels for work, half of the money that they save under a pre-set cap is credited to an internal account, and they can spend that money on a later trip (for things like upgrades) or while on the trip itself. Rocketrip just opens that concept up to everyone.

Rocketrip doesnt plan on charging companies for the service, outside of invoicing them for whatever an employee is owed. So how do they make money?

While Ruch gave me the standard Were focusing on the product answer that most startups give early on, theyve actually already got something of a business model in place. In fact, theyre making money from two arms of the arrangement. On one end, theyre making money from the gift card vendors, who are willing to give them a small cut for the sake of customer acquisition. On the other, theyve got travel vendors; if a customer opts to use a certain site (like say, Expedia) to book their travel, Rocketrip makes a bit of a commission.

Rocketrip is currently bringing companies on one-by-one. If youre interested, you can find the sign-up details here.

[Top image credit: Peshkova on Shutterstock]

Number of the Week: Only Best Credit Scores Getting Mortgages

755: The average FICO score for a conventional mortgage

Mortgage credit continues to loosen up, but getting a loan to buy a house is still difficult for the average American. This is especially true for people without top credit scores.

The average FICO score for a conventional mortgage – one that’s sold to mortgage giants Fannie Mae and Freddie Mac was 755 in February, according to Ellie Mae’s latest mortgage origination report.

The average FICO score for FHA loans – which are backed by the government and attract buyers with lower credit in part because FHA loans require down payment as low as 3% – was 686.

The US average FICO score was 711 in October 2013, the latest available data, so conventional mortgages remain difficult to get for most borrowers. A look at the distribution of credit scores shows why this is: Banks continue to avoid the worst borrowers like the plague.

The accompanying chart, from CoreLogic, shows the historical credit score distribution of purchase mortgages. As you can see, the largest losses have been among buyers in the lowest two tiers, and they aren’t budging much.

Borrowers with FICO scores below 620 accounted for 0.35% or mortgages in January, down from about 13% in February 2003 and a peak of 17% during the frothiest peaks of the housing bubble. The best borrowers, with scores above 780, have taken their place, swelling from about 13% or originations in 2003 to a little less than 30% today.

But, as the chart shows, the share mid-range borrowers those with scores of 640 to 779 are in line with their historic norms.

Lenders reduce required credit scores for FHA loans

Heres some welcome news for first-time and lower-income mortgage borrowers: Home loans insured by the Federal Housing Administration are getting easier to come by.

The average credit score on FHA-backed loans declined steadily in 2013, Inside Mortgage Finance reported Wednesday.

The trade publication said FHA borrowers average debt-to-income ratio a measure of how much of their earnings are needed to keep up with housing and other debt payments rose noticeably as well. Thats another sign that banks have eased up a bit.

QUIZ: How much do you know about mortgages?

The trend appears to be continuing, as actions by No. 1 home lender Wells Fargo amp; Co. illustrate. Since January, Wells employees have been allowed in some cases to qualify FHA borrowers for home-purchase loans with credit scores as low as 600. Thats considered subprime territory and down from a previous threshold of 640.

The FHA theoretically allows credit scores as low as 580. But lenders, buffeted by defaulted loans and demands that they buy back troubled mortgages that they sold, generally have set standards higher since the mortgage meltdown.

A Wells official said the bank consulted with the FHAs parent, the federal Department of Housing and Urban Development, and with advocacy groups before making its decision.

All loan applications are fully underwritten and documented, and borrowers must demonstrate ability to repay, Wells spokesman Tom Goyda said.

Inside Mortgage Finance said Ginnie Mae, the government agency that issues bonds backed by FHA loans, had reported that as of January 2013 the average credit score on an FHA loan was 701, and the debt-to-income ratio was 38%.

Last month, the average credit score was down to 680, while the average debt ratio had risen to 40.3%.

The average credit score in securities backed by Fannie Mae and Freddie Mac fell last year as well and the debt-to-income ratio rose.


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5 Surprising Facts About Credit Scores and Credit Cards

Credit cards can be a bit of a tease. The top cards offer significant rewards, from free airfare to bonus points to 0 percent introductory rates. What they often dont tell you, however, is just how hard it is to qualify for these offers.

The underwriting standards are a closely guarded secret. Much like the Coca-Cola formula, credit card companies closely guard the criteria they use to approve applicants. While the exact details remain a secret, however, we do have some idea of the standards used. This information includes details about the credit scores of approved applicants.

One site,, has recently published a list of the lowest and average credit scores of approved applicants for some of the most exclusive card offers. Taken from data provided by Credit Karma, this information gives us some real insight into what it takes to nab the best reward deals.

Here are five things the data tells us.

1. The 700 club is not required

The average credit scores for the top cards typically range in the low 700s. The lowest approved scores, however, dip well into the 600s. Certainly other factors come into play, such as income and past payment history. But the top credit cards, such as cards from Discover, Citi and Barclaycard approve applicants with scores in the 600s.

2. The bigger the rewards, the higher the score

Not all rewards cards are created equal. The top rewards cards typically offer 2 percent points, miles or cash on virtually all purchases. As one would expected, the average credit score for these offers is notably higher than even other good or excellent credit credit cards. As an example, one version of the Barclaycard Arrival World MasterCard offers 2x miles on all purchases plus significant bonus miles. The average score of approved applicants is nearly 740.

3. The top 0 percent offers require a top credit score

The best 0 percent APR introductory offer available today runs for 18 months. These offers apply to both purchases and balance transfers. While these offers can help people trying to get out of credit card debt, they require a top credit score. The longest 0 percent offers from the likes of Discover and Citi, for example, have average scores in the lower to mid-700s. For those with average credit in the mid-600s, expect to qualify for a 0 percent offer that lasts just six months.

4. Student cards require lower scores
As one would expect, student credit cards require much lower scores. In fact, the available credit score data show that average scores for approved applicants fall below 700. And the lowest approved scores range in the low 600s and in some cases even below 600.

5. Its Not Just about approval

Getting approved for a card is just the start. Credit scores and other underwriting criteria also affect an applicants credit limit and interest rate. High scores result in higher limits and lower rates. One site that gives data on credit limits and rates for various credit scores is called Who Gave Me Credit.

Its important to keep in mind, as noted above, that credit score information is just one factor in the underwriting criteria. In addition, these criteria continually change as card issuers fine-tune their underwriting standards and the interest rate environment changes.

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AfDB urges debt relief for Sudan

A delegation of nine executive directors from the bank concluded a visit to Sudan yesterday where they examined the country’s economic, social and development issues with the president and finance minister.

Publishing its conclusions, the group highlighted that the government had taken steps to implement the economic reforms required by an International Monetary Fund and World Bank programme that forms the basis of vital debt relief efforts.

Sudan’s total government debts stood at 82.2% of gross domestic product in 2012, according to the IMF, which predicted last October that the country’s ‘debt distress’ would see this rise to 87.6% by the end of 2013.

Under a ‘zero option’ agreement when South Sudan was formed in 2011, the new country agreed to join outreach efforts for debt relief for Sudan before a split in the liabilities was agreed.

Having made progress on the technical front, the bank delegation called on both countries to intensify diplomatic efforts in reaching out to bilateral creditors, especially the Paris Club members.

Securing debt relief for both Sudan and South Sudan was the most urgent post secession issue, the AfDB said. The bank would continue to work closely with stakeholders to ensure a continuous dialogue aimed at resolving the issue.

‘The delegation strongly encouraged the two countries to scale-up their efforts and build the momentum that will bring on board its creditors,’ its statement added.

In Sudan, work was also needed to unleash the potential of the private sector and civil society to contribute significantly to policy processes critical for revitalising the economy, the report added.

Although the government has worked to upgrade the infrastructure needed for business investment, poverty reduction and regional integration, there remained an opportunity to do more.

CFPB Calls for Free Credit Scores

The US Consumer Financial Protection Bureau is calling on credit card companies to provide free credit scores to their customers, a move that would help tens of millions of people monitor their financial status.

The agency announced Thursday that Director Richard Cordray wrote to top card companies this month, strongly encouraging them to share credit scores and related information at no charge.

Consumers often learn the importance of their credit standing when it is too late: after a credit application is denied or identity theft has occurred, Cordray said in the letter.

About 157 million Americans have one or more credit cards, according to TransUnion, meaning free credit scores would be widely available if card issuers adopt the policy widely. About 200 million people have a credit file with TransUnion, Experian and Equifax, the big three credit reporting bureaus.

In November 2013, credit score supplier FICO announced that it would allow lenders to share copies of credit scores with their customers, at no extra cost. Discover, First Bankcard and Barclaycard have opted in to the program, providing individuals FICO scores on periodic statements or via customer service websites.

Without mentioning the card issuers or FICO directly, Cordray referred to the recent moves by some banks to make free credit scores available. He called for scores and related educational information to be provided through existing communications, such as monthly statements.

Regular access to credit scores can alert people to identity theft, the CFPB said, as well as provide them with a picture of their creditworthiness. The FICO credit score is the main score used by lenders to evaluate applicants for home loans, auto loans and credit cards.

The announcement came as the watchdog agency announced a report that highlighted problems consumers have with credit reports. Data on credit reports are the basis of FICO credit scores, which analyze consumers available credit and their loan repayment history.

The CFPB said its analysis of consumer complaints found widespread problems with inaccurate information and difficulties with correcting entries. Of 31,000 consumer complaints filed with the CFPB from Oct. 2, 2012 to Feb. 1, 2014, nearly three-quarters concerned inaccurate information, the agency said. Eleven percent of complaints were dissatisfied with how the reporting bureau handled a dispute over an entry, and 9 percent of complaints had trouble obtaining a free annual credit report, their right under the Fair and Accurate Credit Transactions Act.

See related: Credit report complaints highlight errors, Discover expands free FICO credit score program

Subtle pitfalls can damage credit scores

Many people know that making late payments, skipping payments or filing for bankruptcy are ways to ruin their credit.

But there are more subtle, often unrecognized things people do that may damage their credit scores.

One of the potential missteps is when shoppers are enticed by too many instant in-store credit offers.

First, potential creditors may view people who open multiple accounts in a short period of time as being in financial trouble.

In addition, opening up all of that credit could hurt credit scores, which are affected by the average age of a persons credit accounts. The older the accounts, the better.

– from wire reports

Ask Matt: Pay off debt first or start investing?

USA TODAY markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at

Q: If Im in debt should I avoid investing?

A: Investing isnt an all or nothing situation. Its part of a money strategy that fits in most peoples overall financial plans.

Most people, though, work their way up to investing once theyve accumulated some savings and dealt with more pressing financial issues first. Reaching financial goals requires an investment plan. But its difficult to create an investing plan before building savings and paying down debt.

Anyone carrying credit-card debt needs to put paying that down high on the priority list, especially before chasing speculative stock. Credit cards often carry interest rates of 15% or higher. Simply paying off those expensive debts is like scoring a 15% return.

TRACK YOUR STOCKS: Get real-time quotes with our free Portfolio Tracker

Given that stocks, on average, return about 10% a year makes paying down debt a great place to start. And building up an emergency fund, or a reserve of cash that can last you three months or preferable longer is also something youll want to have in place before getting serious about investing.

But that doesnt mean investing doesnt belong in your financial life at all. For instance, if you work at a company that offers a 401(k) plan with matching contributions, youd want to contribute at least enough to get that match.


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