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Debit Card Use Will Increase Over the Holidays; When Will We See a Recovery in Unemployment?; Effort to Making Homes More Affordable Isn't Getting a Lot of Traction

Aired November 28, 2009 - 09:30   ET


GERRI WILLIS, CNN HOST: Hello, I'm Gerri Willis and this say special edition of YOUR BOTTOM LINE, the show that saves you money.

On this Thanksgiving weekend, we're looking back at 2009 and your personal finances. From your house to your job, your savings and your debt, well, is there anything to be thankful for and what do you have to look forward to in 2010? The show that saves you money starts right now.

So, let's begin with your bank account it's no surprise that the economy is squeezing many of you, our budgets are under pressure, saving money is a dream for many people, so let's get straight to the solutions.

Ryan Mack is the president of Optimum Capital Management, Dani Babb author of "The Accidental Landlord" and Lynnette Kahlfani-Cox is the author or "Zero Debt: The Ultimate Guild to Financial Freedom." Donna Rosato is senior writer with "Money" magazine.

Welcome everybody to the Thanksgiving table.

UNIDENTIFIED FEMALE: Thanks, Gerri, great to be here.

WILLIS: I think, you know, this whole idea of savings and debt is so important. And Ryan, we've seen savings rates have risen in September, something like 3.3 percent. But, is this sustainable or are people doing this because they feel like they have to?

RYAN MACK, OPTIMUM CAPITAL MGMT.: Well, you know what, if there's any time that fear was a good thing it's been over the past year or so, when we've seen the economy pull back from the brink of one of the hardest economies since the 1930s, so now individuals are understanding the power of saving, the power what have we need to do with each individual dollar.

There's three things you can do with money, you can spend it, you can invest it or you can give it. So, we have to understand about the power of saving it so we can start to do the other things and more fruitful things outside of material wealth and putting things on things that have no value.

WILLIS: Dani, we got use to saving, I mean, spending rather than saving, I think a lot of people out there would feel that way and, you know, this year we're seeing that people are saying, you know, when it comes to spending for the holidays I'm actually going to pay in cash. DANI BABB, THE BABB GROUP: Pay in cash and debit card for the first time in history, debit card use is actually going to increase credit card use over the holiday season, which really says a lot about where the American consumers' head is and how concerned they are about going further in debt.

WILLIS: Yeah, debt, debt, debt. Lynnette, I think so many people out there are thinking what do I do about this, and of course, you know, the biggest tool people use for debt is their credit card, typically. What's your advice to people out there in?

LYNNETTE KHALFANI-COX, PERSONAL FINANCE AUTHOR: Well, I think Dani touched upon one thing this holiday season, certainly, I think you want to using cash more than the credit cards or perhaps your debit card to access your checking account or your savings account. But even if you're going to use those credit cards, you better check a couple of things before you hit the malls.

WILLIS: Like what?

KHALFANI-COX: Your credit limit, because it might have been slashed, your interest rate, because perhaps it's been changed and the account status because remember a lot of banks have closed off accounts and haven't even notified people that the accounts are closing. You don't want to be embarrassed with a cart full of stuff when you're trying to shop out there.

WILLIS: That's a great idea. I want people to hear something about from Elizabeth Warren, you guys all know Elizabeth Warren, what she had to say about credit cards and some of the things you're pointing out, Lynnette.


PROF ELIZABETH WARREN, HARVARD LAW SCHOOL: The consumer credit market is broken. There's just no other way to describe it. We now receive credit card agreements that are 30, 32 pages long, and they're filled with incomprehensible text. That means that I can't look at credit card A, credit card B and credit card C and tell the difference between them, tell which one I really want, tell which one has the highest risk or the lowest risk.


WILLIS: So, it's been so frustrating for so many people out there, because you felt like the rules were changing all the time, especially this year, as the limits were reduced and interest rates were raised. Donna, what would you say to people out there who are trying to figure out what are the new ground rules, how is it going to change with this new cards act?

DONNA ROSATO, MONEY MAGAZINE: A lot has changed already as Lynnette said that people are seeing that ahead of the new card rules taking effect in February, people are seeing their interest rates rise on their credit cards and their credit limits cut and sometimes cards are being shut down but the good news something to look forward to that you're going to be in 2010 you're going to have less onerous rules on your credit cards.

And I think that's a good thing for people. I don't think credit card debt say positive thing. I mean, you've seen interest rates really climb. The average interest rate on a credit card today is 14 percent. A year ago it was 11 percent. This is not debt you want to have. So the good news is you're going to be treated more fairly with a credit card in 2010, but this is not the debt that you want to have.

WILLIS: Absolutely not. You know, Ryan, what is there to look forward to? I mean, people have more savings, that's good to be a good thing, right?

MACK: Well, it definitely is a good thing. I mean, the GDP is definitely going to rise slower than it had in the past, but I don't think that the sugar high of the GDP rush that we saw in the six percent or seven percent rise...

WILLIS: The sugar high, I love that.

MACK: That's essentially what it was, I mean, it wasn't sustainable. So now we're going to get it back to the basics, get it back to the basics of putting money away, saving for a rainy day. And talking about the credit cards, you know, the credit card companies they're going to be earning projected about $39.5 billion off of overdraft fees so just the simple things of budgeting and making sure if we have $20 in our account, let's not spend $30 and give them the $35 fee that we have to pay to them.

WILLIS: Amen to that. Lynnette, I want to turn to you for a second, because what Ryan is saying here is so important. You know, when people do pay down their debt and I know that you personally had a lot of debt at one point and paid it off. How does that make you feel going forward?

KHALFANI-COX: It's liberating, IT'S tremendously gratifying, because you really do feel enslaved by the debt. You feel there's so much that I can't do because I'm in bondage with the debt.

WILLIS: It's weight on your shoulders, right?

KHALFANI-COX: Oh, absolutely, I can't save for my future, I can't save for my kids' college education. I can't tuck away money for college; I can't pursue business opportunities that I might like to have. And frankly I'm just stressed out about it. Nobody likes the thought of living paycheck to paycheck or perhaps arguing with their spouse about money, et cetera. So, I think Ryan touched upon a great point is that the back to basics movement that we've seen across America is a very, very good thing.

I expect that the savings rate is going to stay marketed higher than it was, say, a couple of years ago. Right Donna? When it was negative two percent. And so, this is a good thing. We've had to wean ourselves from credit and that's good for the American economy and for the global economy going forward.

WILLIS: Well, Lynnette, great thoughts. Great thoughts, everybody. Thanks a lot. Stay put, you're not going anywhere. We're just getting started. Unemployment is over 10 percent. How safe is your job right now and going forward? We'll tackle your No. 1 investment, your home.


WILLIS: Since the beginning of the recession back in December, 2007, the unemployment rate has gone from 4.9 percent all the way past the double-digit mark. The unemployment rate jumped to 10.2 percent in October, that is the highest since 1983 and with these numbers this startling, when will we see a recovery on the jobs front?

Donna, I want to turn to you. 7.3 million Americans unemployed since the beginning of the recession. Where are the jobs we've been promised?

ROSATO: We've lost more than seven million jobs the unemployment rate is at the highest in more than almost three decades so where are the jobs? The bad news is that the unemployment rate continues to go higher, but there have been some bright spots even in the worst of the downturn.

WILLIS: What are the bright spots?

ROSATO: Health care continues to be higher. If you look at unemployment, the unemployment rate within health care and education together it's less than five percent compared to 10 percent for the overall economy.

WILLIS: So, that's very different.

ROSATO: It is very different and for folks who have a college degree as well it's about half the overall unemployment rate so folks are in some growing industries and who have been adding to their skills and have education, have felt a little bit less of the pain, but no doubt in 2010, the unemployment rate is going to remain high and we all need to keep adding to our skills.

WILLIS: So I know that when you talk about unemployment, the people have been really affected, there are a lot of boomers have been affected, older people in the workforce that have been affected and some of the folks haven't interviewed in decades. They don't even know how to do it, Lynnette. What is your advice?

KHALFANI-COX: Well, you know, to anybody out there who has to sort of start over if they've gotten a pink slip, you know you want to you know, definite want to obviously bone up on all your skill sets, your communication skills, your technical skills, your managerial skills, your writing skills and so forth.

You want to obviously polish up that resume, get any kind of career counseling or advice you can get, but I think one thing to highlight just to follow on what Donna was talking about, some of the good news, there are industries that are hiring like health care and education, government sectors

WILLIS: Government is a big source of jobs.

KHALFANI-COX: They're hiring, right. But to the average person who's job hunting, it doesn't feel that way for two important reasons. One is that one out of three of the 15 million unemployed Americans right now, have been out of a job for six months or longer, so we're talking about chronic unemployment and that hurts. I mean, when you think about the average family really just needing a paycheck every two weeks, the thought of going six months or more without a steady earned income is daunting.

The other factor, if I say this real quickly, for every one full time job that's available, there are six workers vying for that job. So it's very completive.

WILLIS: All right, so let's get Dani in here because I know she's been thinking about small business and small business hiring. You know, this is the engine of the American economy. When are they going to start really hiring in earnest?

BABB: It is. Well, what happens, right now, what's happening now is about 30 percent of the American workforce is employed by companies with 100 or fewer employees in general. That's small businesses. Small businesses are afraid to death of taxes and they're not hiring.

What we do know is that employment lags behind the economy substantially up to a couple of years. Back in 1983, we had an eight percent growth rate in the economy, but we only dropped unemployment by 2.5 percent. So, it's going to be some time before we see these jobs return back to the market.

Where we're seeing growth is exactly what's been talked about already, health care, green jobs is another area, and higher education. If you have a masters degree this may be the time to get a part-time teaching job while waiting for your full time job.

WILLIS: Wow, a part-time teaching job. Ryan give me some hope, here.

MACK: Well definitely, I think that people get it. You know, I'm from Detroit and the community colleges right now are being overflowed with individuals trying to get additional training, additional services to say that I need to get recertified, I need to get additional licenses. This is a direction that we need to go, find out what your skills are, what your talents are, what your passion is, what are you good at. You might have been in automotive industry working on the line. But you know what, you might want to see if you can become a nurse's assistant.

WILLIS: Well, that brings up a good question. I mean, do you think people will start moving for jobs? I mean, that's happened in the past people where leave areas like Detroit where unemployment is so awful. Do you think, Ryan, that we can start seeing really some displacement of workers to different parts of the country?

MACK: I think individuals are going to start thinking outside the box and if that's changing locations, if that's changing careers, if that's changing countries we have to understand that this is what it's all about. We have to figure out what you need to do to get dollars in your pocket, food on your table thinking aggressively and being positive, think optimistically, things are going to start turning your way.

KHALFANI-COX: And one other thing, I think, for the people who are unemployed to give them a little bit of hope, you know, I always talk to people and I know Dani is a big advocate, she and I are both entrepreneurs, Ryan as well, and you know, the thing is sometimes it's easier to land a client than it is to land a job.

So, people who have certainly specialty skill sets, think about consulting, think about turning a hobby into cash. Pursuing a little bit of that entrepreneurial ambition and go to-itiveness, if that's a good word to use, or phrase, that sort of defined a lot of the American ethos, here. You know, don't just think that your fortune is completely tied to corporate America. Think about pursuing a small business opportunity.

ROSATO: It's sort of the rise of freelance nation and I think it's a positive thing. you know, I think it kind of puts you more in control of your career and I think especially if health care reform gets fixed it's going to be easier to pursue those kinds of opportunities.

WILLIS: Great conversation. Still ahead, your house and your health care, lots has changed this year and there are even more changes in store for next year. Stay with us.


WILLIS: Still with us this half hour, and they're not going anywhere, Ryan Mack, Dani Babb, Lynnette Kahlfani-Cox and Donna Rosato. Just last month, the third consecutive monthly decline in foreclosure filings, is st a possible indication the foreclosure tide is turning?

Well, back in February I spoke to the head of the Department of Housing and Urban Development, Sean Donovan. Here's what he had to say.


SEAN DONAVAN, DEPT. OF HOUSING & URBAN DEV.: The key effort at limiting foreclosures will be using a significant amount, tens of billions of dollars, of TARP money to be able to accelerate dramatically modifications of mortgages, and what we are working on is a plan to create a set of incentives, assistance to do that, while at the same time making sure that we have the tools that will ensure that lenders do it through a range of options.


WILLIS: All right, that was Sean Donovan and Dani Babb, you know, making home affordable, not getting a lot of traction here.


WILLIS: What do you she? The marketplace? Because you're at the ground level.

BABB: Yeah, what I'm seeing is banks completely unwilling to make a modification for a homeowner unless they're going to get government money to do it. Which means that about 30 percent of the homeowners out there that need it will actually get it. Right now two-thirds of the U.S. population owns a home right now. One-quarter of the U.S. homes actually have negative equity. These people will be in foreclosure at some point. We haven't begun to see the jumbo market fail, which will happen on 2011.

WILLIS: It's going to get worse? Is that what you're saying, Dani?

BABB: I'm saying the housing market will get worse. But we have to remember, too, that four states make up 50 percent of the foreclosure rate, so it's not widespread. It is very specific to certain areas.

WILLIS: Ryan, I want to turn to you, now. I know you think that what's going on with the government and the spending going on there is really kind of propping up the numbers and making it look better than it otherwise would.

MACK: Well, stimulus has definitely helped, but especially when it comes to the home tax credit we have to urge individuals don't buy a home just because you get a tax credit. We have to get back to the basics. Do you have your FICO score higher, do you have, not only a regular budget, but a house budget to figure out how much can you really afford.

Now, tax credit should be like the cherry on top of the banana split, it shouldn't be the banana split itself. It's like that additional incentive that you have that says, oh, you know what, I can afford to buy a home and guess what, now I get an additional $8,000 to help subsidize payments. So, just don't go out and purchase that...

WILLIS: Donna, what do you make of that? I mean, you talk about how the numbers are misleading and the shadow inventories out there. Do we have a long road to go in this market?

ROSATO: We still do. And I have to say, we'll probably have more foreclosures -- 2.4 million foreclosures are projengted in 2010 versus two million this year. So, it's going to get worse before it gets better. Home prices are still going to decline, but as Dani said, it is somewhat geographic.

I mean, the good news is we're seeing some stabilization in the housing market, and if you are a home buyer, this is the good news, you know, with the tax credit. As Ryan said, you want to have all your ducks in a row before you use that, but if you are a home buyer in the market, that is what's stimulating some of the economies helping stabilize some of these things. WILLIS: But, you know, the interesting point is it's not just the people who want to buy, it's also the people who already own who are in deep trouble.

ROSATO: Correct.

WILLIS: Lynnette, what would you tell them?

KHALFANI-COX: Well obviously, like Ryan said, you don't bite off more than you can schu. The $8,000 tax credit for first time home buyers is one incentive. I think it's moving the needle in terms of stimulating purchases more for the first-time home buyer, as opposed to the trade up or move up buyer, they're eligible through April of 2010 for a $6,500 tax credit. But frankly, nobody I know who's going to buy a second home is just going to do so just for $6,500.

WILLIS: But my question is, what are people who are in homes right now and they've seen the value of their home fall? What would be your words of wisdom for them? Because they're tally people who are thinking, what am I going to do here? Should I hold onto this house, should I try to unload it? You know, I'm losing value every day.

KHALFANI-COX: I understand. I would say, consider you situation and look at it in two different terms. One is don't be swayed by the masses to say, oh, everybody else is walking away from their mortgage. You know, what's the big deal? Everybody will have a foreclosure, a late payment, a delinquency on their record.

Oh, it will be easier in the long run because so many other people did it that way. No, it's not going to be, because the credit scoring system is still going to be severely, you know, punitive and penalizing you for doing that just to sort of haphazardly walk away.

WILLIS: So, don't do that.

KHALFANI-COX: No, I really don't encourage people to do that. Seek every possible alternative, whether it's budgeting, credit counseling, perhaps a debt management program to see if you can hang on to what could potentially could be the biggest asset of your life. If you truly cannot afford a house, try to do a short sale, try to work out a plan where, you know, the minimal damage is done to your credit rating and your overall financial well-being.

MACK: Again, getting back to basics, this is your home. This is the place where you hang your hat. Too many people have started to think of their home as an investment. If your home starts to lose in value and you're going to be there for the next 30 years, hopefully you can take that home and pass it to your children's children and keep it in the family, so what if it loses value? Hopefully you did it the right way and you did it in the responsible way.

WILLIS: All right, we got to go. I mean, we need an after-show now, right, just like Oprah. All right, we'll be back in a minute with more conversation. Last but certainly not lease, your health care. Open enrollment season has wrapped up at companies across the country. Big changes are in store for you and your family and we'll break all right down, right after this.


WILLIS: All right. Quickly, guy, before we run out of time, one thing we certainly have to be thankful for this time of year is our health, and while the health care debate is far from over, open enrollment season is pretty much done. So, let's take a quick listen to what our friend Andrew Rubin told us back in October about what's in store for next year.


ANDREW RUBIN, SIRIUS XM DOCTOR RADIO: Co-insurance has always existed but it's changing, as like you said, co-pays are going away in some plans and they're applying co-insurance amounts. It's very simple to understand -- 10 percent, 20 percent of whatever the bill is, the individual's going to pay as opposed to $10, $20, $30 co-pays that used to apply. You're starting to see that more, it's not universal, but it's been introduced in a lot of places.


WILLIS: What do you have to say about that, because, I know our company is changing to co-insurance.

ROSATO: That is right. There's no doubt that we're all going to be paying more for health insurance in to 20 10, but here's one good trend that a lot of the companies that are changing to co-insurance are also offering free preventive care, so get that annual physical, get that cholesterol screening. That will help you stay healthy and be in charge of your health care and stay healthy.

WILLIS: Which is the most important thing, right, Lynnette?

KHALFANI-COX: Absolutely. And also for those 48 million Americans who are uninsured, underinsured, one thing you might look at is what's offered by your state, because if you're in a low to moderate income bracket, there may be health care options available for you or for your kids if you can't afford to pay for it yourself.

WILLIS: Like the S-chip program, which is so popular.

KHALFANI-COX: That's correct. Exactly.

WILLIS: Dani, I've been telling people that what you want to do is use up your benefits this year because it may not be as nice next year. What do you think?

BABB: I think that yeah, you're absolutely right, and we also need to take advantage of health care savings accounts and flexible spending accounts, if your employer offers it, and we really need to be mindful of how this is going to impact small businesses.

MACK: I think the bottom line is we have to understand that physical prosperity is just as important as financial prosperity. So, are you working out four times a week, are you going to the dentist? Those dental bills can add up over time. Are you making sure you're eating right? This is one of the fattest times of year for every one of us, so we have to make sure -- just because -- we don't have a license to eat unhealthily just because it's Thanksgiving, make sure you're working out and keeping yourself in shape.

WILLIS: Right, I love that. Donna?

ROSATO: And I guess I would just add onto that that you want to take advantage of that preventative care, and you can have a gym membership and put that into your flexible spending account. There's a lot of things that you can write off to help yourself stay healthy.

WILLIS: I thought about that, that's a great idea. Lynnette, one last word here for people out there who are thinking about what am I going to do about health care, they're worried about their families, you mentioned state programs, the S-chip program, great for kids. Right? If you're really against it and you don't have a job, there are free alternatives for people.

KHALFANI-COX: Absolutely. And you know, I think a lot of people need to get over the pride factor. Sometimes people don't want to accept either government or state aid or free options that might be available to them. Maybe they think they might be taxing the system in an unnecessary way, but listen, if your kids need it, if you need it for your health, this is the time to go ahead and say I'm eligible, I'm going to take advantage of it. Don't be too proud to get the help you need.

WILLIS: Well, I appreciate all your comments today. You guys are so helpful. Ryan, a last word here for people out there who were thinking is next year going to be better.

MACK: Well, I always like to tell individuals that, you know, if you have the faith, you know, faith is half believing that tomorrow is going to be better and the other half is acting on that belief, because people act according to what they believe is going to happen. But you have to have the works, put it into works to make sure tomorrow will be a better tomorrow.

WILLIS: Excellent job, Ryan. Excellent job panel, you guys were fantastic. Thank you for so much.

As always, we thank you for spending part of your Saturday with us. YOUR BOTTOM LINE will be back next week right here on CNN, you can also catch us on HLN every Saturday and Sunday at 3:30 p.m. Eastern Time. And you can hear much more about the impact of this week's news on your money on YOUR MONEY with Christine Romans and Ali Velshi, Saturdays at 1:00 p.m. Eastern and Sundays at 3:00, right here on CNN.

Don't go anywhere. Your top stories are next in the CNN NEWSROOM, have a great weekend. Cheers, guys. Yeah. Happy Thanksgiving.