Fairfield-Echo.com

Clark Howard's Tips

January 15, 2008

Take a look at The Wall Street Journal and you'll see one dire headline after another.

In the latest edition of Clarkonomics, Clark explained how one root of the problem is that money has been too easy to borrow. Between 2000-2006, our average household debt rose by 500 percent. That's unprecedented in our history. Banks kept making mortgage loans and didn't care if the loan was going to get paid. They were all too happy to package loans together and sell them off as supposedly safe investments.

Meanwhile, conventional wisdom says that sub-prime mortgage holders get in trouble when their rates reset. Yet the reality is that most got in trouble even earlier.

On the other side of the spectrum, you have upper middle-class people who took out option payment loans and bought expensive homes. These are people with good credit scores and histories. But the balance on option payment loans goes up over time. So the story of one man who contacted Clark when he was $400,000 upside down in his home is not unique.

In the past, when the economy started to tank, you flooded it with money. That's no longer an alternative. We're facing a time when we'll have to go cold turkey and clean the excess out of the economy. Millions will get hurt, and hundreds of thousands in the financial sector may lose their jobs. States and local governments will continue going in the red and have to decide whether to cut spending or raise taxes.

At some point, people will lose confidence in owning real estate. They'll have to double up, move in with family or become renters. We're not there yet. But after we get there, look for a time when the excess housing supply will be a real deal.

If you have an opportunity to buy for pennies or dimes on the dollar, pounce on it and then be prepared to wait for recovery. The other bit of advice Clark has for tight economic times is perennial: Reduce your debt exposure!

Consumer advice courtesy of