Making the situation worse this year is the fact that most of the credit card companies are raising interest rates and fees ahead of the new Credit CARD law to take effect on February 22. The new law limits when the credit card companies can raise interest rates and fees so the banks are making sure they are positioned where they can collect higher rates after the law takes effect.

Those Christmas purchases are now going to cost a lot more and the goal, according to financial planners, should be to pay off those credit cards as quickly as possible. The New Year is traditionally a time to make resolutions and review financial status. Already into the middle of January, it is an excellent time to look at current debt status with a critical eye. One of the steps many consumers are taking is reviewing the previous year spending patterns before evaluating ways to consolidate current debt. Even better than consolidation is paying off debt whenever possible.

The reason spending patterns are reviewed first is because some consumers borrow from one source to pay off credit card debts only to create new balances again through overspending and charging. But the new interest rates and fees that credit companies are charging are proving to be exorbitant. Even people with excellent credit scores are getting notification their interest rates are going up as high as 26% and sometimes higher.

Financial planners recommend that consumers pay off the credit card debt as quickly as possible. Credit card companies have lost billions of dollars as the recession lingers on and now they are faced with tougher federal regulations on rate changes. It is not surprising these companies are looking for ways to preserve revenue.

It is surprising though that many consumers charged their Christmas purchases despite the recession. A better plan for the New Year is to buy Christmas gifts throughout the year and avoid charging any gifts in 2010. The author of “Life or Debt 2010” is Stacy Johnson. He points out that, “Banks and credit card companies aren’t your friends.” That can be hard to remember when reading the nice advertisements that come with the cards claiming to help consumers manage their expenses by supplying credit.

The exorbitant interest rates are not being well received by consumers or Congress. There has been discussion about moving up the start date of the new Credit CARD law though implementation is only five weeks away now. But consumers can take charge of their spending habits and debt right now. Paying off the credit card balances is the first step. The second step is making sure spending is managed in a way that reliance on credit cards to balance budgets is minimized.

The Home Affordable Modification Program (HAMP) was slow to start, but the Obama Administration has been pushing lenders to provide more assistance to homeowners in trouble. A mire of paperwork was preventing many homeowners from getting relief, and as a result the procedures have been simplified in some areas and forms processing streamlined. Lenders are being asked to produce results because many consumers are experiencing nothing but frustration trying to work with their mortgage companies.

The program is incentivized by the federal government. It is estimated there are 1.7 million mortgages eligible under the current program rules. This equates to 3 percent of all mortgages. The types of modifications being made include loan term extensions and lowered interest rates. In fact, some interest rates have been cut to as low as 2 percent. The median amount of the mortgage reduction is approximately $522 each month.

The program gives homeowners a temporary reduction in their mortgage payment for up to three months. The trial period serves two purposes. The first reason is to give consumers involved in the program time to gather together the necessary documentation to prove their income and justify a permanent modification. The second reason is to give the lender a chance to see if the homeowner will be able to meet the new mortgage payment on a timely basis.

As of the end of January, the U.S. Treasury Department reports that 116,000 households have completed permanent mortgage modifications. That is a small number considering the number of applications for temporary modification. Some modifications never make it through the process because the homeowners are unable to meet the income verification requirements.

Some believe it is unfortunate that many unemployed people will lose their homes because they are not eligible for the modification program. The opposite viewpoint is that the government is not obligated to keep people in homes they cannot afford. The Treasury Department reported that 60,000 loan modification accounts have been cancelled to date for one reason or another.

Those consumers who do not qualify for the HAMP program are often faced with foreclosure or short sales. A short sale is when the lender allows the homeowner to sell the house for less than the mortgage balance. It is expected that many people will simply not be able to qualify for permanent mortgage modification.

In 2010 it is expected that close to 2 million more homes will go into foreclosure. The expansion of the HAMP program is expected to help many keep their homes, but more will be foreclosed on. Program detractors say that a number of the people losing their homes should never have qualified for the original mortgage based on their incomes.

As a result, stock market continues to jump up and down throughout each session. Investors of every ilk and caliber wobble between genuine worries about the state of the nation’s economy at large while retaining a measure of hope for the financial sector. It has become a predictable pattern on Wall Street to see rapid bursts of optimism followed quickly by deep fears about the economic condition of the United States.

All of the major players in the markets, from Dow Jones and S&P 500 to NASDAQ have all been experiencing steady drops during daily trading sessions. The markets remain volatile. The Dow and the S&P 500 both fell more than 24% so far this year. In fact, the Dow recently reached its lowest level since the spring of 1997; the S&P 500 is at its lowest point since September 1996. The NASDAQ experienced a six-year low.

Yet, not all the news was dark. It seems that financial stocks remained the lone exception in a market climate characterized by decline by maintaining gains achieved early on even as other industries faltered.

According to news report, Bank of America could be set to raise significant capital in the private sector. This item has become a rallying point for many other financial institutions. It comes despite the fact that the shares of major institutions have suffered a beating that has left them at record lows. The underlying fear is that the banks will not have enough money to deal with future losses, furthering the possibility that more banks will fold despite government intervention.

Following the precedent set by JPMorgan Chase and Wells Fargo, Capital One Financial Corp. became the latest bank to eliminate its dividend. Representatives of the lender stated that a 87% reduction in the dividend, to about 5 cents should be expected in order to conserve available capital.

Parallel concerns about the state of US automakers continue to influence many investors and also the lack of lenders providing auto loans is a real problem. The status of GM and Chrysler are still be decided as members of President Obama’s auto task force work to develop a rescue plan that accounts for all the relevant factors.

It’s just not really that easy for someone raised in today’s society to view “good debt” as anything but debt, and consequently something to be avoided. For that reason, rewiring your thinking to view what is traditionally seen as “good debt” as an “investment” can help substantially improve matters for you.

That said, you might still be wary of investments in this market. Everyone knows the stock market isn’t in the best of shape, and most other funds seem to be crumbling as well. So, what to do? Why not take out a loan? If this sounds contrary to reason, you’re still not thinking of the ways in which debt can be an investment.

When you take out a loan, the nature of the debt depends on what you spend the money on. Simply put, if you spend the money on something that will depreciate in value, such as a new car or a new computer, it’s debt. If, on the other hand, you spend that money on something that will appreciate in value, something that you could potentially resell later at a higher value (or use as collateral to improve credit), it’s an investment.

Buying one’s one home is one of the best investments that one can make, and luckily, right now is one of the most opportune times in the last few decades to make just such a purchase. Mortgages across the country are seeing all time low interest rates, and besides that, there are many tax credits being offered to first time home buyers that you stand to take advantage of if you strike now.

Ever wish you could have gotten in on the ground floor of a stock that was certain to skyrocket later on? Buying a house in today’s market is kind of like doing exactly that. At present, the nationwide average interest rate on a standard mortgage of 30 years with a fixed rate, sits at just 5.28 percent. This is the result of steady decreases over the last several years, and approaches an all-time low.

Thinking of relocating? Now’s as good a time as any for that as well, because interest rates can even dip below the already low national average as you move from state to state. For instance, Pennsylvania is currently sitting a few points below the national average, while Georgia offers one of the best opportunities in the country for a low 5.14 percent interest rate.

Managing your finances in this environment can be quite an ordeal, especially if you’re trying to rebuild your credit and savings by establishing “good debt”. However, even in the midst of the recession, there’s one market to be taken advantage of yet, and if you strike now, the benefits can change your life forever.

The 30-year fixed-rate mortgage, which is used as a benchmark for evaluations, has fallen by 12 basis points, reducing them to 5.8%. This information comes from a national survey taken of the largest lenders. Basis points are calculated as being one-hundredth of a percentage.

Another benchmark, the 15-year fixed-rate mortgage, has managed to fall a total of 16 basis points, reducing their rates to around 5.51 percent.

The number of applications for mortgages continues to fluctuate. Depending on how you count the figures, the number of applications has managed to either go up or down in the past month. Factors such as the Thanksgiving holiday have to be considered; the effect that day has had on the lives of people applying for mortgages is particularly pronounced. According to the Mortgage Bankers Association, the raw number of applications for mortgages rose by roughly 33%.

Bob Walters, Quicken Loan’s chief economist, has mentioned his thoughts on this subject. He believes that the recent drop in mortgage rates has proven to be a huge incentive for consumers looking to refinance and obtain a fixed-rate loan. He also feels that those who are looking to enter the market in order to purchase a home have an outstanding opportunity to acquire a cheap investment.

It does seem like borrowers are looking for more security than ever before. Only 1.1% of all applicants for a home mortgage were asking for adjustable-rates in recent history. Those that already have adjustable mortgages are trying to refinance into loans with fixed-rates as well, in order to obtain the certainty they desire when it comes to making monthly loan payments.

Beginning next school year, loans will be replaced by scholarships at Swarthmore.  The change is likely to affect more than 700 new and current students.  That’s half of the school’s enrollment.

The dean of admissions and financial aid, Jim Bock, was quoted as saying, “Loan-free awards will give our students the freedom to explore all career choices because they won’t need to worry about how they will repay their college loans.”

Current tuition, room, and board at Swarthmore run $45,700 a year.

Swarthmore’s announcement follows Harvard University’s decision to replace all student loans with grants.

As a result, Harvard will spend as much as $22 million more each year on student aid.  The policy is aimed at middle- and upper-middle-class students.

The University of Pennsylvania and other colleges currently have plans in place that permit low-income students to attend college virtually for free.

The changes in financial aid policies arise from an effort to seek an economically-diverse student body.  Universities are also trying to answer critics who say that the cost of a college education is too high.

The moves also come in light of the controversy over student loan programs.  Some programs have been accused of being corrupt – student loan firms are alleged to have cultivated improper relationships with college officials.

In addition, a number of students are graduating from college with almost insurmountable debt loads.  In some cases, students end their college careers with tens of thousands of dollars in student loan debt.  As a result, some college grads are postponing marriage, delaying children, and giving up their dream of owning their own homes and in effect need to consider debt consolidation loans to improve their personal finances after graduation.

Observers are hoping the changes in student aid packages will help to alleviate the problem, allowing college graduates to enjoy a higher standard of living.

The Federal Reserve reports that consumer borrowing increased at an annual rate of 7.4% in November.  That’s much higher than the 1% increase reported in October.

The segment of borrowing that includes debt from credit cards skyrocketed at a yearly rate of 11.3%.  That’s a 6-month high.  The surge apparently means that consumers are relying more heavily on credit cards, now that home equity lines of credit are drying up.

Auto loans also rose in November, increasing at a rate of 5.1%.  Interestingly enough, car loans had decreased 3.5% in October.

Total credit is now up by $15.4 billion—that’s a great deal more than the $8.5 billion that had been predicted by forecasters.

The housing crisis appears to be largely responsible for the increased credit card debt.  Home prices have been falling and standards for home loans have gotten stricter.  As a result, it’s become more difficult to sell a home at a good price.  Therefore, a number of homeowners have been tapping into their credit accounts in order to stay afloat.

Total consumer credit now stands at $2.51 trillion, which represents a record.  The report by the Federal Reserve gauges debt not secured by real estate.  That means that mortgages are not covered in the report.

The housing market is not expected to recover until at least the middle of 2008.  So far, the nation’s housing troubles have not led to a full-blown recession, although that’s still a possibility.  Some observers are urging the Federal Reserve to cut interest rates once again in an attempt to jump-start the housing sector.

Some pessimistic forecasters are predicting that house prices will not recover until 2010.  That’s particularly bad news for those who need to sell their homes this year in order to relocate to new jobs.

At the same time, defaults on car loans appear to be rising, increasing worries for investors. As a result, some investors are wondering whether another major market for fixed income investors, student loans, may be the next sector to fall.

But the troubles affecting the subprime market and the auto loan market may not necessarily translate into problems for the student loan sector. Still, there is the distinct possibility that student loans could become a risky investment in the near term. That’s because student loan default rates have been increasing in the past few months. But while the defaults are cause for concern, they don’t appear to be a trend as of yet.

If, however, there is a noticeable increase in the unemployment rate, student loan defaults could escalate.

One of the advantages to investing in student loans is the fact that they are insured by the U.S. Department of Education. Private student loans are not federally insured, but applicants for those loans need to demonstrate a solid credit history in order to qualify. In addition, such private loans often require a co-signer who is legally responsible if the student should default.

Yet, the subprime loan crisis could have a potential impact on private student loans. If the housing crisis leads to a recession, new college graduates may find it difficult to find a high-paying first job. As a result, they may find it difficult to keep up with their student loan payments. So far, however, the housing situation has not fanned the flames of recession.

The Fed has decreased the federal funds rate, the rate that banks charge each other for overnight loans.

The rate cut marks the third one for the Fed this year.  It follows a nationwide housing crisis—the worst housing slump in some 16 years.  It also comes in the wake of a subprime loan crisis which has caused some financial institutions to leave the subprime business altogether.  Subprime loans are those loans which are extended to individuals with shaky credit histories.  The default rate on subprime loans has been incredibly high, giving rise to the current crisis.

In addition, home prices have fallen dramatically, causing understandable concern for home sellers.  At the same time, would-be homebuyers are having a tougher time obtaining mortgages because of stricter loan standards.

Some analysts are predicting that the Fed will cut interest rates again in 2008—with as many as three rate cuts on the way.  The current rate cut should lead to lower interest rates for credit cards, homeowner loans, and adjustable-rate mortgages.

The Fed’s rate cut also has an indirect effect on long-term rates on such loan products as 30-year mortgages.

Meanwhile, interest rates for savings are also tumbling.  The yield on a 1-year certificate of deposit has dropped to 3.49%.  That’s compared to a rate of 3.8% during the same period 1 year ago.

Economists do not expect the housing market to recover until at least the middle of 2008.  As a result, the housing situation could become a major issue in next year’s Presidential contest.

So far, the housing crisis has not given rise to an all-out recession, although that fear obviously persists.  As a result, the chairman of the Federal Reserve Board has vowed to do everything possible to keep recession at bay.

The housing market has been in free fall for many months, the result of plunging home prices and sluggish sales.  It’s also become increasingly difficult for prospective homebuyers to purchase houses because of stricter loan standards.   Meanwhile, the foreclosure rate has doubled over the past year and additional foreclosures are expected because of the resetting of interest rates on adjustable rate mortgages.

Legislation introduced in Congress would permit bankruptcy judges to change repayment terms on homeowner loans in an effort to help financially-troubled homeowners hang onto their homes.  Through the program, judges could lower interest rates, extend the life of the loan, or forgive part of the debt removing the need for debt consolidation.  A judge could also lower the principal of the loan to the house’s fair market value.

An organization called the Center for Responsible Lending expects such changes to assist more than half a million families keep their homes.  The plan could also save lenders money by reducing their foreclosure costs.

However, the lending industry opposes the legislation, saying that the stricter regulations are unnecessary and that the market should be permitted to correct itself.   Still, with as many as 2 million additional foreclosures predicted for the next year, such arguments may hold little sway with lawmakers.

It’s also likely that the national housing crisis will become an issue in the 2008 Presidential race.  With so many homeowners facing foreclosure, housing problems may emerge as a key topic for political discussion.

The housing crisis is not expected to lessen until the middle of next year.  Economists appear to be divided about whether the housing crisis will lead to an all-out recession.  Meanwhile, the Federal Reserve Board has pledged to do its part by doing everything possible to keep the economy humming into next year.