Downturn / market correction / recession

Anonymous · ‎03-01-2019

Something I read in another thread reminded me of my experience in 2008/2009 and I started wondering how common it was and if there were a way to prepare for it. I mean... Other than having cash reserves.

In 2007 I thought I was smart... I had about 10k worth of 2k cards (citi, Barclay, several wamu, a couple bofa) and a utilization of about 50% and a credit score of 640...i knew I was supposed to be below 30%... But like I said, I thought I knew what I was doing... Paying all that stupid interest per month.

When people started going on TV saying the sky is about to fall... I put in CLI requests with all my cards... I mean, I'm already carrying a balance. What if the sky falls, I might need the cushion..it seemed smart at the time. Most if not all of these were denied.

Very shortly after, related to the CLIs or otherwise, one of my cards decided to balance chase. Immediately after the rest of my cards saw my new extra high balance, the rest balance chased as well... It was a race to the bottom, and I lost.

If I needed the credit for cushion... Well... It was never available to me when it could have been useful. Luckily, I never lost my job, though my income did contract for a bit.

Just to be clear... I never missed a payment. Even the cards that chased me all the way to 0...i paid them all off in full. I still have my home depot card that never closed me out. None of them had missed payments. The adverse actions were due to the general economy and possibly exasperated by my profile, utilization and subsequent snowballing from AA.. But not missed payments.

FF to today... I have close to 100k in available credit with about 10% utilization which should be paid off soon. Had 0% before some unexpected expenses during the summer. If we had another recession... I have a much better cushion... not necessarily to spend high utilization, but, more than I had last time.

I know none of us can tell the future... I hope we don't see anything like 2008 again in my lifetime, however... The standard boom and bust cycle we've been on for decades has people who are smarter than me saying we are close to the peak of our bull market. I'm inclined to believe that much as a general statement.

So... First question... For those "smart" people like me back then, who carried too high a balance but DIDN'T do CLIs when bad news was on tv... Was the balance chasing across the board pretty common?

Second question... People who were closer to my current position with low utilization ... Did you fare better... Or did they balance chase everybody?

Basically, what's the best and worst case scenario? I'm assuming they didn't balance chase and cancel every cc holder in the country... But maybe they did. How many people made it through with no AA at all, or very minor... What did it take?

800FICOGoal · ‎03-01-2019

@Anonymous wrote:
FF to today... I have close to 100k in available credit with about 10% utilization which should be paid off soon. Had 0% before some unexpected expenses during the summer. If we had another recession... I have a much better cushion... not necessarily to spend high utilization, but, more than I had last time.

Credit cards are not a cushion. Who's to say the CC issuers wont slash CL's during the next recession. 1k, 10k , 100k can all be taken away.

Rebuild Cards

Goal Cards

Loans

Anonymous · ‎03-01-2019

Establish relationships with CUs. They weather recessions much better than banks do.

GApeachy · ‎03-01-2019

....and raise the APR. That Snowball effect sunk a lot of ships.

My Take Home Pay Don't Take Me Home

Save-n-Invest · ‎03-01-2019

Emergency cash funds or equities that retain some value is the only way I know to weather a storm like the 2007-2009 period. One of my cards was closed. I don't remember who the issuer was. I received a letter that the issuer was proactive and I was considered a risk. I got a copy of my reports as I feared identity theft. The account that was closed was either inactive or I failed to activate a renewal card. I don't remember which it was. I was just relieved that identity theft was not on my plate.

This co-incided with spousal loss and loss of all income. I left my employment to be a 24 hour caregiver. The usual methods of freeing up resources were not an option at that time. Downsizing the home would have resulted in a loss and possible little to no cash. The home market was in a downward spiral. My portfolio tanked as did other people's. I was too young to access qualified funds without penalty.

I was in the age range that most likely would have made securing a new job difficult. I have a very marketable degree so maybe employment would have been possible. At that time I was paralyzed with grief. I doubt I would have been effective in my profession anyway.

I don't want to think of what my fate would have been without ready cash. I've never considered credit lines as anything other than a hole to jump into and then have to crawl out. My credit cards are a convenience. I pay in full each month.

Cash available for emergency situations and economic downturns is the only way I know.

Remedios · ‎03-01-2019

Did the sky fall yet?

I usually dont get memos

Anonymous · ‎03-01-2019

My comments below in blue.

@Anonymous wrote:

So... First question... For those "smart" people like me back then, who carried too high a balance but DIDN'T do CLIs when bad news was on tv... Was the balance chasing across the board pretty common.

Requesting CLIs would not necessarily have protected you. The key things to remember are that (a) Your utilization was already high, and (b) You had been carrying balances on all your cards. These two things together marked you as high risk. Asking for lots more credit as soon as thing looked bad for the economy would have, for many creditors, increased your risk to them.

And yes, balance chasing and unilateral closing of cards by issuers happened to most people they judged to be high risk. Closures due to inactivity also stepped up.

Second question... People who were closer to my current position with low utilization ... Did you fare better... Or did they balance chase everybody?

They took AA against people they judged to be high risk. Some people have created a history for themselves of almost never carrying a balance, but rather paying their statement balances in full each month -- and they may also have had fairly low reported utilization in 2008-2010. Assuming they had no derogs such people would have been judged low risk.

Basically, what's the best and worst case scenario? I'm assuming they didn't balance chase and cancel every cc holder in the country... But maybe they did. How many people made it through with no AA at all, or very minor... What did it take?

I don't know for sure. But surely the proper line of defense is not to try to find that line in the send that barely protects you and just stay an inch away from it.

Rather, you should be always paying your cards in full, never being late, and having low CC utilization. And then to protect yourself from ever being in the situation where you'd be in trouble if you lost your job, be sure you are socking large amounts away into savings every month.

A tool in your savings arsenal might be a Roth IRA. You can withdraw all your principal at any time, and use it to invest and gain money tax free.

fuzzle · ‎03-01-2019

who knows? for the next recession the Fed might pay off everyone's cards, or maybe inflation will raise the minimum wage to $15...thousand per hour, the winners will be the ones deepest in debt

Anonymous · ‎03-01-2019

Cash or cash equivalents, as much as you can reasonably set aside. I drained my IRA after 2008-9, due to long term un/under-employment. I don't ever want to be there again.

I thought we were due for the correction back in 2015. I was wrong.

tacpoly · ‎03-02-2019

@Anonymous wrote:

Basically, what's the best and worst case scenario? I'm assuming they didn't balance chase and cancel every cc holder in the country... But maybe they did. How many people made it through with no AA at all, or very minor... What did it take?

No change in my credit lines at all through the Great Recession. CC companies didn’t make any changes and neither did I: no CLI request, no CLD, maintained my regular payment pattern, no carrying balances. Actually, I was a day late with a payment one time (because I had been in the middle of a major move); I called Chase to make a payment in full over the phone (~20K balance) and they agreed to waive penalty and interest. As I recall there were these massive sales at the time (Saks slashed prices by 80%!) and I may have spent more than normal for a month or two.

So the trick is to remove any reason for ccc to see you as a(n increased) risk, specially when their tolerance for risk is greatly diminished.