There is an End in Sight

And according to Miss Suze Orman herself, it’s not going to be until 2015 or 2016. If this is turns out to be true, its going to be another seven to eight years before 10 million people are fully employed. In a speech delivered at Rutgers University and TD Banks’ Road to Personal Wealth, Suze explained the interconnectedness between housing, employment and, the next to fall, the credit card industry .

Let’s paint a picture of an average hard working female (leave the males alone, right?) who unfortunately was laid off of her job. She has a sub-prime mortgage in which she was already struggling to pay for, credit card debt from a start up business she was working on on the side and all of the other hardships any American faces.

Its a vicious cycle that this woman would have to pull herself out of. But the mindset that Suze warns us about and the reason why she says this is going to be a long journey is this: credit card debt and the impending and overwhelming defaults and decreasing credit scores to match.

Lets call this female, Chanel. Chanel, now without a job, is living off of her severance pay. She does not have an emergency savings account with six months of living expenses, so she stops paying her mortgage and figures she will move in with her mom once her house is repossessed. She stops paying her credit card bill too. Before, Credit Card Companies (C3’s) could garnish your wages or sue you and place a lien on your home. Luckily for Chanel, she has neither!

While living in her moms house, Chanel receives a letter from both her bank (where her mortgage is held) and her C3. She already knows what the bank is going to say and curses that they have tracked her down. “Dear Chanel”, writes her C3, “blah, blah, blah, we are revoking your credit card blah, blah, blah and decreasing your limit blah, blah, blah and increasing your interest rate blah, blah, blah due to late payments” . Nothing too bad. Chanel breathes a sigh of relief.

Not so fast CoCo. Her new limit just so happens to be her entire balance and Chanel is now at 100% debt-to-credit ratio, a ratio that accounts for 30% of her (your) credit score.  A credit score that if decreased, increases her already high mortgage rate, decrease her chances of getting a new apartment and moving out of her moms house (again) and increases her car payments, a car that she bought for a steal due to the collapsing automotive industry.

Now what’s a girl to do???

Suze says that in this situation, Chanel would file for bankruptcy and hopefully be able to pull herself up right around the time the rest of the economy is doing the same. Poor CoCo Chanel.

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