With Jill Gonzalez, Consumer Finance guru and spokesperson for WalletHub.com
Steve welcomed back to the show Jill Gonzalez, Consumer Finance guru and spokesperson for WalletHub.com. Jill let listeners in on some of the good financial news for consumers. She and Steve talked about how people can take advantage of the latest rate cut to improve their finances and save substantial sums of money. They also revealed how credit card holders can save thousands in interest rate charges!
What’s The Good News? Lower Interest Rates!
In a response to all the uncertainty surrounding the coronavirus, the Federal Reserve did its first emergency rate cut since 2008 in the amount of 50 basis points (that’s half a percentage point). Interest rates going down means people who have debt—mortgage debt, credit card debt, auto loans, whatever, etc—are going to benefit.
Jill said, ”Because this is the Fed’s first emergency cut since 2008, the markets are reacting to this pretty much immediately. That’s great news for some people, like those looking to buy a home or refinance their current mortgage.” “That’s me!” Steve chimed in. “I think I can save about ¾ of a percent by doing a refi, and I’m also thinking about saving even more by converting from a 30-year to a 15-year mortgage.” (Regardless of your interest rate, a 15-year mortgage can save you up to more than $100,000 in interest charges, as compared to a standard 30-year mortgage.)
Jill explained that mortgage loans and auto loans are the two areas where consumers are likely to see the best opportunities for saving money on interest charges. She noted that there’s already been a noticeable uptick in applications for refinancing.
Save Big On Credit Card Debt
The Fed’s rate cut isn’t going to make as much difference in other areas, such as credit card rates. However, there is a smart move that you can make if you have a lot of credit card debt, a move that can flat out save you a fortune. What is it? Taking advantage of very attractive credit card balance transfer rates.
Steve agrees wholeheartedly with that idea, pointing out that banks are making credit card balance transfer offers like 0% interest for 12 to 18 months (Jill has actually seen offers as high 21 months with no interest). If you transfer a $5,000 credit card balance from a card charging you 20% interest to a card that charges you no interest for up to 18 months, you can save yourself over $1,000 in interest charges. That’s an extra thousand dollars in your pocket instead of the bank’s pocket.
Jill let listeners in on a little banking industry secret. The reason that so many banks are going after your credit card business so aggressively, using these zero-percent interest balance transfer offers, is because they know that consumer debt is at an all-time high. In other words, there are a lot of people out there with a lot of credit card debt. Naturally, the banks want to get as big a piece of that pie as they can. Their attitude is basically, “Please bring US your mountain of credit card debt. We would love to have your business and be earning interest off you the rest of your life.” The way they look at it is, okay, so they won’t charge you any interest for 12 to 18 months, but they hope to be charging you plenty of interest for years to come after that.
Steve urged people to take advantage of these offers for substantial savings. He said, “Folks, if you just go online and Google balance transfer offers, you will see numerous choices. You can take something that’s currently charging you 17% to 27%, and for the next 18 to 21 months or so, get charged 0%. So, every dollar that you pay during that time is going directly to paying down the principal. Please consider doing this. It’s very, very important.”
Of course, make sure you get the best deal you can. Watch out for large balance transfer fees or annual fees, and check the interest rate that you’ll be paying when they do start charging you interest.
Tips For Businesses
Steve asked Jill what businesses can do to safely navigate their way through these uncertain times. She thinks the most important thing to focus on is retaining the talent you have working for you. “You want to safeguard your human capital. How can you do that in the best way possible? For many businesses, that means letting people work remotely, from home. If you experience some disruptions in your operations, you may be able to manage temporarily reduced cash flow by temporarily cutting back on some workers’ hours or by using some other cost-cutting measures.”
You can get other personal finance tips and information at WalletHub.com.
Disclosure: The opinions expressed are those of the interviewee and not necessarily of the radio show. Interviewee is not a representative of the radio show. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.
Steve Pomeranz: With all the fear and trepidation happening in the financial markets, there are some positive signs here, some positive things that are happening that are going to actually help your wallet. And to discuss that, I have asked Jill Gonzalez, who is a spokesperson for WalletHub.com to join me. Hey, Jill, welcome back to the show.
Jill Gonzalez: Thanks for having me back.
Steve Pomeranz: The Federal Reserve announced that they’re cutting interest rates. They’re cutting them by 50 basis points, which is one half of 1% as an emergency response to the economic uncertainty of what may happen with the coronavirus. Now whenever you hear of a cut in interest rates, those people who have debt, whether it be mortgage debt, auto debt, credit card debt, are going to benefit. Let’s talk about that a little bit and have you noticed that rates have started to decline in response to the Fed’s move?
Jill Gonzalez: Yeah, absolutely. I mean, this is the Fed’s first emergency rate cut since 2008, so the market is really reacting to this pretty much immediately. And although that might mean great news for some people—especially if you’re considering say a refinance—for others don’t get too excited about things like credit card rates really dropping because you’re only going to save about two bucks a month on credit cards.
Steve Pomeranz: Yeah.
Jill Gonzalez: It definitely is better news for some people than others.
Steve Pomeranz: Yeah, I mean if you have credit card debt and the rate they’re charging you is, let’s say, 17.5% percent and it declines to 17%, it’s still a huge rate. And I think the average balance on credit cards is around $5,700, you guys have calculated that to be $2 a month. I mean, that’s not going to help anybody. But I will say in the mortgage area, what are you seeing in terms of refis and other kinds of mortgage action?
Jill Gonzalez: Yeah, mortgages probably see the most change here. APRs will decrease by an average of about 26 basis points. That essentially is good news for those in the housing market looking to go home shopping and also those interested in refis. I mean, mortgage interest rates are already low. So now there is a huge potential and actually something we’ve seen for an increase in refinancing contracts.
Steve Pomeranz: Yeah, we are seeing that right now. As a matter of fact, I personally am looking to refinance. I have a 30-year mortgage that I took out six years ago t three and three-quarters, which I thought unbelievably attractive. Now if I wanted to refinance a 30 year, again the rate is a little over 3%, so that’s three-quarters of 1% that I’m seeing in my local market. If I want to go to a 15 year, that’s two and five-eighths percent, so I think I’m actually going to do that. It’ll add to my monthly payment, but again, more of that payment is going to go towards principal than a 30-year mortgage. I do think that mortgage rates are coming down, but I would say for people to be aware because the volume that the banks are experiencing now seems to be very high. And some banks, I understand this is just hearsay, are keeping their rates artificially high in order to slow down the process, slow down the loan demand. Have you heard of anything like that?
Jill Gonzalez: Nothing really substantiated. I certainly would not put it against or passed any banks.
Steve Pomeranz: Why, we don’t love the banks? I’m kidding.
Jill Gonzalez: Yeah. We’ll hear about this in earnest years from now probably.
Steve Pomeranz: That’s right.
Jill Gonzalez: But, yeah, it’s definitely something that I would not think to be false.
Steve Pomeranz: Well, if you think about it from the bank’s point of view, let’s say they’re charging 4% on average for all these mortgages. All of a sudden, they have to turn around and immediately only get 3%, let’s just say. They’re losing 25% of their revenue on an existing book of assets that they already have. Now, they’re also going to be borrowing money cheaper, but that’s going to take a while to come through their system. So I think if I were a bank, I would say, “Hey, let’s kind of cool it a little bit. This refinancing is great, but we don’t really want to reflect the drop in current interest rates with such immediacy.” And I have read that they actually are holding back a little bit. Let me ask you another question. As a consumer, what else should I do to prepare for this in these uncertain times?
Jill Gonzalez: So, obviously first and foremost, worry about your health. That should be the first thing that you’re doing. But when you were talking about finances, winding up with more savings than you need will really help you out in the future. Whether that’s cutting back on things across the board because you are concerned on your safety, that’s one thing. The other thing is to kind of look at these benefits and say, “Okay, it’s not all that out there right now. Should I be refinancing or should I be looking to buy? Should I be even looking to buy a car?” There are cheaper rates right now, not that much cheaper but a little bit so not only look at and focus on the bad here but focus on the good in terms of how your wallet maybe can benefit.
Steve Pomeranz: There are many banks that offer incredibly attractive balance transfer rates, like 0% for 12 months or 18 months. And I don’t know that people do that as much as they should. Have you guys written about that at all?
Jill Gonzalez: Absolutely. Now is actually an amazing time for balance transfer deals on credit cards because banks are really trying to see what debt people already have. Right now, it’s kind of at record levels. I mean we’re looking at the third trillion-dollar a year in a row for outstanding credit card balances as a country, and banks know that. They see people trying to pay off this debt. They want to kind of keep the debt or attract debt to their bank. Because of that, they’re offering anywhere from 12 to 18 to, the longest we’ve seen is 21 months, balance transfer deals that people, I think, are getting offered more and more. I think the awareness is creeping up. But actually, pulling the trigger and using that to save on the debt that you owe is a great idea.
Steve Pomeranz: Folks, if you just go online and Google “balance transfer offers,” you will see numerous choices. And if you do a little bit of homework and you spend a little bit of time, you can take something that’s currently charging you 17% and for the next 18 to 21 months or so get 0%. So every dollar that you put against it is going to go directly to paying down principal, please consider doing that. It’s very, very important. Jill, what should businesses be doing to prepare?
Jill Gonzalez: Businesses, I think we’ve seen lately, especially in states that have declared a state of emergency, know that there are going to be interruptions to their business processes. You want to try to minimize that as much as possible. And you also want to safeguard your human capital, the people that work for you. How can you do that in the best way possible? For many businesses that are working remotely, which we’ve seen businesses throughout the country urge their workers to do. For some businesses, that’s not possible when you’re thinking of things like retail, tourism, that kind of thing.
Steve Pomeranz: Yeah.
Jill Gonzalez: I think the number one thing is to make sure that you’re looking out for the people that work for you and for the people that would be coming into your business and to seeing how you could possibly reduce hours or do certain things differently so that you’re not losing money continuing on as if nothing’s happening.
Steve Pomeranz: Well, I’ve seen some humorous videos coming out of Italy, one in which they’re serving customers with these long-handled shovels, I guess that’s not really the right word. When you put a pizza in the oven with a wooden… I don’t know what that word is.
Jill Gonzalez: Yeah, a wooden something.
Steve Pomeranz: A wooden something, you know what I’m talking about. But these have extra-long handles. If you’re getting an espresso, they’re serving you the espresso from about 10 feet away with one of these handles. Anyway, the bottom line is a lot of this is really unknown. A lot of this in my view is just a lot of flu. It’s a big flu that’s captured our attention and with due respect it is causing I think a lot of concern, and I think people need to be careful. People know what to do. But anyway, on the good side of things, on the debt side of things, if you’re carrying debt and many, many people do, now is a very good time to either refinance or maybe do a balance transfer or take advantage of what’s going on the positive side instead of just being immobilized on what’s happening on the negative side. My guest, Jill Gonzalez from WalletHub. Thank you so much, Jill.
Jill Gonzalez: Anytime.
Steve Pomeranz: To hear this and any interview again if you have a question, we love your questions, ask us about anything that we’ve discussed. Go to our website, which is stevepomeranz.com to join the conversation while you’re there, sign up for our weekly update for upcoming live events, and the important topics we’ve covered this week straight into your inbox that stevepomeranz.com. Once again, thanks, Jill.
Jill Gonzalez: Anytime. Thanks, Steve.