Credit Lines Could Get Cut: What to Do Now

Episode Introduction

Steve Rhode: Hey, welcome back to the Get Out of Debt Guy show. I’m Steve, the old Get Out of Debt Guy. And with me, as always, is Damon Day, the new, invigorated younger Get Out of Debt Guy. Say hello, Damon.

Damon Day: Hey, everyone.

Steve Rhode: Before I forget, you can always reach Damon Day at damonday.com. He does free consultations. If you want to talk, have a little chitty chat about your debt.

Steve Rhode: Recently we talked about having a chitty chat about a kitty cat. Did you ever talk to that person again?

Damon Day: Steve, I talked to so many people. I don’t know who you’re referring to.

Steve Rhode: Oh, the cat — I don’t know.

Damon Day: Oh, yeah. Yeah, there’s actually a couple cat sanctuaries. It’s a thing. I’ve got some horse sanctuaries. I’ve got probably five or six animal sanctuaries in one form or another, not me personally. I’m talking about clients with sanctuaries.

Steve Rhode: Pam’s always said that if we won the big lottery that she would start like a dog rescue farm and we would have a farm.

Damon Day: For those of you that don’t know, Steve’s a huge dog lover to the point where for many years, he was a rescue person for dogs. He literally would take his plane and he would rescue dogs from kill shelters and fly them up to places for adoption.

Steve Rhode: I have never risked my life more than those years that I was doing that. That was rough.

Damon Day: I got a nice compliment from a lady I spoke with yesterday who listens to the podcast. She said that she really enjoyed the show. She just recently found us and she’s been listening. She enjoyed it because we take this subject of finance and debt — stuff that’s traditionally a boring subject — and she likes the fact that we’re funny. We laugh a lot on the show. And that we cuss. She goes, it’s just kind of refreshing and different and real.

Steve Rhode: So maybe we’ll cuss some more today.

Damon Day: No way.

Rising Prices and Inflation

Damon Day: You know, all of a sudden, for 24 hours, there was a ceasefire and gas prices took a temporary dip. It’s actually getting comical now. Ceasefire, back on, drop bomb. Never mind.

Steve Rhode: I think honestly, the oil companies — this is my own personal opinion — they’re just using it as cover to jack up gas prices. Because I refuse to believe that this conflict is pushing up prices instantly. It’s like, oh, we have cover. We can raise prices.

Damon Day: This is all these companies doing now, just like COVID, right? It’s like the old playbook. Hey, we have something we can blame. So we can raise prices and just point to that thing.

Steve Rhode: They go fast when they have to raise prices. Come down slow. It’s like shrinkflation at the grocery store. When was the last time a box of Cheerios got bigger? Never.

Damon Day: I was at Costco like three days ago. I swear, I had like four items. One of them was these Sony headphones — $200 headphones. A thing of batteries. My son wanted a little thing of cookies. Some popcorn my daughter wanted. Maybe one other small thing. It’s $440. I looked at my card and I’m going in my head, it wasn’t $400. And when I looked at each thing, it’s like, yeah, that’s what that cost.

Steve Rhode: Pam and I go to Costco for lunch sometimes, it’s such a deal.

Damon Day: I feel like I need to go there for lunch every day now. I mean, that’s all I can afford after buying everything else.

Steve Rhode: Compare the Costco hot dog drink or pizza drink deal for less than two bucks to having something to eat at McDonald’s.

Damon Day: My advice would be, if you live close to a Costco or a Sam’s Club, just swing by for lunch every day. It’s literally cheaper than you can make your own.

Steve Rhode: So there was actually a post I was working on about how people are now jumping towards generic products at stores.

Damon Day: Well, you’re late to the party. I’ve been doing that for years.

Steve Rhode: Here’s the tricky thing that’s happening right now — the generic brands look cheaper. But people are looking at the wrong price. You need to look at the unit price, not the price of the product. So you can have a generic product — it might not have as much in it. So you’re not getting all the value that you think. Look at the unit pricing on the shelf if you’re making the decision.

Damon Day: That is a pro tip. A pro tip that my wife has never done.

Timeshare Exit Scam Warning

Damon Day: This is just more of a PSA. Steve wrote about it. And this is something I’ve been complaining about for years. Stop getting into timeshares because you can’t get out of timeshares.

Steve Rhode: Well, it’s about another timeshare exit company where they got caught offering no services and charging a lot of money. This company was Square One Group, but it operated under Consumer Law Protection, Square One Group, Premier Reservations Group, Report Transfer Group, Timeshare Help Source. It’s another one of these schemes that charges people a lot of money to try to break free from a timeshare. It specifically targeted older adults.

Damon Day: Because they took all the free trips and bought all the timeshares. I don’t understand timeshares. I never have. I don’t want to rent time for something that I’m probably not going to use.

Steve Rhode: And then have to pay special assessments and dues when a property is run down. Just rent a hotel room. Go to a resort. Do not buy a timeshare.

Damon Day: Your tastes change, right? Situations in life change. When you went to the timeshare, maybe your kids were young and the Disney timeshare sounded great. But five years from there, now your kids are teenagers. They don’t like you anymore. They don’t want to hang out with you. They don’t want to go to the Disney resort with you anymore. And you’re paying fees. And the fees just get bigger and bigger because the resorts get older. People drop out and people stop paying. So the amount of people paying for these older resorts that need repairs gets smaller and smaller.

Steve Rhode: And then people go, oh, I don’t want to do this anymore. I haven’t used it in five years. I’m going to sell it. Good luck.

Damon Day: I want people to think about this. When you think about buying a timeshare — there is an entire industry dedicated to this pain point of you can’t get out of your timeshare. And you’ll pay a lot of money to do it. That one fact tells you I shouldn’t buy this.

Steve Rhode: The timeshare companies do have free or low cost voluntary surrender programs where you can hand it back. But people always say, I’ve spent so much on this — I need to get some of that money back instead of just handing it over and walking away and being free.

Damon Day: Here’s the other thing. How did you buy it? You got high-pressured into it. They probably flew you and your family out for a two-night, three-day trip. And a slew of professional salespeople — trained closers — spent two days getting you to say, fine, I’ll sign it. Just let me go home. That’s how they sold it to you when it was shiny and new. And you think you’re going to throw it on a website listing five years later and somebody’s going to come and buy that?

Steve Rhode: I had a client once who was making a lot of money and his entire job was whenever they opened a new timeshare location, he was the closer. He flew to every new timeshare operation and he closed the deal.

Damon Day: He was Vin Diesel in Boiler Room.

Steve Rhode: Let me give you an example of a terrible timeshare deal. Somebody that I know bought a timeshare in Myrtle Beach, South Carolina. Over time, they never went back there because they were using their points in different places. Then they started getting giant special assessment bills. The development near the ocean was getting beat up pretty bad. They were paying special assessments for a location that they never went to. And those assessments don’t stop.

Damon Day: So you have a whole industry devoted towards trying to get people out so you can get scammed on the front and you can get scammed on the back. It’s great. And you might get a water slide in between.

Steve Rhode: If you’ve been contacted by a timeshare exit company, you can go to getoutofdebt.org — at the bottom of the website under the free tools section. If they’ve given you a contract, you can look at the Contract Decoder to see what it really means. Or you can use the Scam-O-Meter.

Wells Fargo CEO Warning: Your Credit Lines Could Disappear

Damon Day: This article — Wells Fargo’s CEO just dropped a three-word warning about your credit lines — jumped out at me because I talk to people about this literally every day. Available credit left, getting close to the limits. They’re essentially using the available credit as their lifeline. Their savings is gone. Maybe their retirement is now gone. And so this article is a warning. It’s the canary in the coal mine.

Steve Rhode: If companies start pulling back and your credit card company starts eliminating those zero balance transfer offers that you’ve been skipping along with, what are you going to do? Interest rates on credit cards can still go up more. Companies are pulling back and passing costs on to consumers.

Damon Day: Here’s why this is important, because I talk to people about this every day. I always tell my clients this: You can operate fine if you have money in the bank and available credit. No problem. You can operate if you’ve got no money in the bank and available credit. A little bit of a problem, but you can still operate. You can sleep at night if you’ve got money in the bank and no available credit. But what you cannot do for any length of time is operate with no money in the bank and no credit. You cannot do it, because sure as something, something’s going to come up tomorrow that you didn’t budget for.

Damon Day: What would you do if you needed 500 bucks and your cards were maxed out, you had no available credit, your utilization ratio was so high nobody would give you any more credit, and you had no money in the bank? You’d be missing payments. Now you’re playing musical chairs. Do not wait to call me for help until you get to that point. If you’re already at that point, call me immediately. But if you’re cruising to that point quickly, call me before you get there.

Steve Rhode: This is a snowball because banks look at their risk and then they reduce the credit line — your available credit. And then they also tighten the approval criteria. So it makes it harder to get a card or to transfer anything else. Then they also raise your annual percentage rate because you’re more of a risk. And once they have done all these things, it flows downhill because now your utilization rate is going up. And so that triggers other banks to go, whoa.

Damon Day: You get that Dear John letter and you’re sleeping at night kind of okay, you’re stressed, but you think you’ve got time. You’ve got your plans. You’ve got that $10,000 of available credit on that Chase card. And one day, you wake up and you get a letter that says, that $10,000 is gone. We’ve adjusted your limit down. If you are operating with no cash in the bank and that credit was your emergency fund, you went to bed thinking you were fine. You woke up the next day with no cash and no credit and the transmission goes out in the car and you are screwed.

Damon Day: Do not wait. You cannot rely on available credit to be your emergency fund. If you’re in a spot right now where your available credit is your fallback, you’re already screwed. We need to fix that before Jamie Dimon sends you a letter.

Steve Rhode: And also we need to fix it before the ostrich syndrome kicks in to full effect, which is, you got your head in the sand and you’re spending down what little assets you have because you’re afraid to fall behind on the bills. And before you know it, you’re out of money and you’re still falling behind.

Damon Day: Again, if you’re relying on your credit to be your lifeline, we need a better plan. We need to get out ahead of that so we can start getting cash in the bank. We have to fix the cash flow. The problem is so many people get fixated — I got to fix my debt, I got to get out of debt — and that’s true, but that’s the wrong thing to focus on when you have no money in the bank. We got to get money in the bank first. Fix the cash flow and then we have time to fix the debt. But the cash flow is going to kill you before the debt does.

Steve Rhode: What we’re talking about with this story is that Wall Street is talking, but people are not listening to it. They’re talking to each other. And they’re saying, things are not looking good. In fact, I think the exact quote is, it does feel like there’s some fragility or nervousness in the markets which you don’t see yet in the economy.

Damon Day: And when the market is falling on hard times and things are dropping, Steve, are you better off with cash or debt?

Steve Rhode: Cash.

Damon Day: So how about we get you guys some cash before it happens? Because that’s where opportunity is. People that have cash and are prepared, get excited. Buying opportunity. 40% of Americans can’t absorb a $500 emergency.

DR Horton and the Housing Market Warning

Steve Rhode: DR Horton, the big home builder, just announced that profits are dropping. And that’s important because it’s the sign that the economy is slowing down.

Damon Day: Steve, explain to me, just as an average consumer, why do I care about DR Horton’s profits? What does that matter to me?

Steve Rhode: Well, it means that things are going to get more expensive. If DR Horton is not making enough money, then people are saying, well, I’ll sell my house when things get bad enough. But that works in a hot market. In a cooling market, selling takes longer and you make less.

Damon Day: So what this is, is just one data point, one indicator. When new home builders start to slow down, prices come down. When new home builders drop their prices, it has an effect on existing home sales and home prices — usually about six, nine, twelve months. The comps on your house will start to come down if the newer houses in the area are selling for less. It’ll affect your ability as a homeowner to sell your house for the price that you think.

Damon Day: Or your ability to get a HELOC. If worst case scenario, you’re thinking I’m going to get a HELOC and pay off my high interest consumer debt — when prices start to come down, that could hinder your ability to even get a HELOC or sell the house at the price that you need to.

Steve Rhode: This is how this story ties into what we were talking about with credit cards. If you have a home equity line of credit and you’re saying that’s your emergency fund — your HELOC agreement has a clause about property value reductions. If your lender determines your home value has declined based on comps or automated value models, they can freeze or reduce your available credit with little or no notice. That can leave you trapped.

Damon Day: The tea leaves are saying strange things are afoot in the economy. Prepare yourself as best you can.

Steve Rhode: We don’t need tea leaves. We just need to go back and listen to the last six or twenty podcasts where we’ve been talking about the cost of living and inflation and just getting by keeps going up.

Helping Your Kids Get a Head Start

Damon Day: I am fully convinced the best thing you can do for your kids is not kick them out at 18 but let them stay there and work and get started in their career, get through college, and help them out as long as possible. Give them a head start. So they’re not leaving the house at 18, going to college, getting a ton of student debt, and at 24 owing $150,000 and barely making enough money to rent an apartment.

Damon Day: Let them stay home and start their life, get out there and work, start making some money and saving that money. Put it in the 401k, put it in an investment account. When they’re 24, 25 and they go out, now they’re ahead of 95% of the other kids their age.

Steve Rhode: I think we’re going to have to go back to almost generational housing like we used to do because kids just can’t do it.

Damon Day: My brother and I went in together and bought our first house when we were still in college. It was a $165,000 brand new house on a golf course in Southern California. We each put $5,000 down and split a $1,300 mortgage payment. You can’t even do that in Missouri now, much less Southern California.

Wrap-Up

Steve Rhode: We didn’t get to the private credit funds, which is actually very important for people. And then Procter and Gamble just warned prices are going up.

Damon Day: Again, noticing the theme. Here’s the tea leaves. Prices are going up. If you’re in debt and you’re already struggling, it’s not going to get easier. If you’re spending $2,000 a month servicing debt, imagine how much easier it’d be to absorb the rising prices if you didn’t have to pay that $2,000 a month in credit card debt.

Steve Rhode: No matter what your problem, there are solutions. Be sure to reach out to Damon Day at damonday.com and schedule a free consult with him and talk it through before you jump off the cliff.

Damon Day: If you want to read more of these stories, go to getoutofdebt.org and you can read them all day long. Subscribe to the newsletter and you’ll get a weekday email drop with what you need to know.

Steve Rhode: Until next time.

Damon Day: Peace.