STOP SPENDING MONEY (Major Changes To ALL Credit Cards)

What's up Grandma! It's guys here, so no need to worry about rising interest rates, high inflation, heated consumer spending, or Microsoft's new AI exposing personal information out of vengeance. Because instead, the latest threat to our economy is said to be the fact that Americans are quickly running out of savings to the point where pretty soon they'll have nothing left.

In fact, if you don't believe me, the personal savings rate just hit one of its lowest points ever in history, with the average American saving just 3.4 percent of their income. Credit card debt just soared to a new all-time high of 1 trillion dollars, and auto payments are falling behind at the fastest pace since 2010. That's why we really need to talk about why 2023 could be the year of the personal debt crisis, how this could mark the end of the buy and hold strategy, and what you could do about this to either make or save a lot of money.

On today's episode, you could now get verified on Instagram for 11.99 a month. Although, before we start, if you guys enjoy watching Mark Zuckerberg copy Elon Musk—I mean, watching me break down the most important topics of the week, every single week—it would mean a lot to me if you hit the like button and subscribed for the YouTube algorithm if you haven't done that already. So, thank you guys so much!

And now, with that said, let's begin. All right, so we need to start talking about one of the largest problems that we're soon going to face, and that would be debt. The fact is, over 80 percent of middle-income households cut down on their savings or pulled money from existing savings to make ends meet in the last three months of 2022.

And the more time goes on, the worse these numbers get. Just take credit card spending, for example. Unpaid balances recently increased by 6.6 percent, bringing the total amount owed to one trillion dollars, which means we saw the largest increase on record since 1999. On top of that, this is also being called triple trouble for credit card users, with balances going up during a time where interest rates are higher and more people are carrying debt.

So, to help with this, there's a brand new proposal from the White House that aims to do the unthinkable, and that would be to reduce late fees. See, here's the thing: as of now, credit card companies are able to charge you a late fee anytime you fail to meet the bill's minimum payment by the due date. Just think of it like a sting to discourage you from ever missing that deadline or kind of like rubbing salt in the wound to make a bad situation just a little bit worse.

But what most people don't realize is that late fees like this were actually capped in 2009, so that a person cannot be charged more than 29 on their first late payment or more than forty dollars for the subsequent late payment, on top of the interest that you would already be charged anytime you don't pay off your bill in full. Basically, that just means that late payments get really, really expensive.

And as our economy slows down, the White House wants to step in, as they explain when someone misses the due date—if even just by a few hours—they're hit with excessive fees that are beyond the credit card company's cost to collect. In essence, they argue that these expensive late fees are not needed to deter late payments nor are they justified because credit card companies make a profit every time you don't pay by the deadline.

So, to give a little bit more relief to American families, they're proposing that late fees be limited to a maximum of eight dollars and ban fee amounts above 25 percent of the consumer's required payment. That means under these new rules you would no longer get hit with a 29 to 40 dollar late fee for missing a ten dollar payment, and a credit card issuer cannot charge more than eight dollars unless they could reasonably prove that their collection would cost more.

Now, in terms of how large that collection would be, it was found that the average credit card user carried a balance of fifty-eight hundred dollars over the last three months of 2022, which at the average interest rate of 21.6 percent means that Americans are wasting over twelve hundred dollars every single year in interest alone, and it's only expected to go higher once the Federal Reserve raises rates even more.

Although before we go into some of the best ways that you could cut down debt as fast as possible, there's another topic that's worth bringing to your attention, and that's the fact that the buy and hold strategy is dead. All right, now before you think I've completely lost my mind and changed everything I've ever stood for, just hear me out.

For those unaware, one of my favorite blogs is what's called a Wealth of Common Sense by the financial advisor Ben Carlson. I would highly recommend it, and I'll link to it down below in the description. But he recently brought up a very interesting point: that investors are beginning to dump stocks at the fastest pace in decades.

See, all of this started from a recent survey that found that the average holding period for an individual stock in the United States is now just 10 months, down from five years in the 1970s. Of course, if you're thinking to yourself, "But Graham, that's just individual stocks; mutual funds and ETFs and index funds would be way longer," you would be wrong because even mutual funds have an average holding period of just two and a half years. That's it!

So why does that matter? Well, as Ben points out, time is one of the best ways to make money in the markets because short-term, anything can happen. To put that into perspective, you have a 63 percent chance of the stock market going up in value within a month, 75 percent that happens in a year, 88 percent in five years, and 100 percent in 20 years.

So even if your initial timing is terrible, history shows that you're still likely to make a profit statistically if you do absolutely nothing. So why does everybody do the exact opposite of that? That's because they still haven't subscribed and hit the like button for the YouTube algorithm! Just kidding!

In all seriousness, Ben mentions that there are three main culprits that have led to investors selling a lot faster than expected. And the first one is low trading costs. Just consider this: trading commissions were as high as one percent in the 1980s, and even just 20 years ago, low-fee brokerages were still charging seven dollars a trade, which at that point I remember was a bargain.

But today, trading fees are pretty much non-existent. And even though some brokerages may rely on payment for order flow, which is usually a few fractions of a penny, others go so far as to eliminate that cost entirely, like our sponsor public.com, who passes as many savings back to the customer as possible, including a free stock that's valued all the way up to a thousand dollars when you sign up and make a deposit.

With a good gram! On top of that, second, trading is also easier everywhere. Just consider that before computers, people actually had to get on the phone to place a trade, and unless they were watching stock tickers on the TV, they did not have access to up-to-date pricing like they do now.

And third, let's be real, the barrier to entry to trade stocks is practically non-existent at this point. As long as you're over the age of 18, you could sign up for a brand new account in minutes, have instant access to trading as soon as you initiate a deposit, and have access to various communities that are dedicated to minute-by-minute moves.

Now fortunately, of course, there is some good news when it comes to this: not only is stock market investing more accessible today than it ever has been in the past, but all the information that you need to know to get started is available right now at your fingertips, 24/7 and for free.

In addition to that, the stock market's also increased by an average of 18 percent the year after a substantial decline. So being down for two consecutive years is rather rare. But you know what's not rare? Late auto payments! Because borrowers are beginning to fall behind at the fastest pace in more than a decade.

How is that for a transition? Look, it's no surprise there has been a substantial bubble with used car prices, a shortage of auto manufacturing, a limited supply of parts, record low interest rates, and a search demand caused your average car to go up in value by 22 percent, outperforming the stock market, real estate, precious metals, fine wine, luxury watches, artwork, Legos—the list goes on!

Although the issue today isn't so much that used car prices are beginning to fall, because let's be real, we all could have seen that one coming, but instead, the fact that used car financing is an absolute disaster waiting to happen. Let me explain.

An Iowa law review found that over the last 10 years, car dealerships have begun making more profits from the financing of cars rather than in the car sale itself. And that transitioning from auto sales to loan sales has resulted in a very loosely regulated grey market industry where lenders are able to issue subprime loans that are probably not in the best interest of the customer.

For example, unlike mortgages, student loans, credit cards, and even payday loans, there is no federal oversight on automotive loans, and that makes it easy for someone to get approved for a loan that probably shouldn't really qualify for it. If you don't believe me, a Jalopnik investigation in 2021 found that 25 to 50 percent of loans were given to customers who might not be able to afford them.

And lenders rarely verified income and employment to borrowers to confirm they had sufficient income to repay their loan. Bloomberg also noted that as many as one in five borrowers admitted in a survey that their applications for debt contained inaccuracies, meaning fraud could be more pervasive than lenders planned for.

This basically implies that not only are lenders turning a blind eye to income and employment verification for the sake of issuing a loan at a highly inflated price, but 20 percent of those customers are also lying on that application for the sake of being able to drive off in a new car that's rapidly losing value.

As of now, it's reported that almost 10 percent of auto loans extended to people with low credit scores were 30 or more days behind on payments at the end of last year. On top of that, getting out of those payments is going to be increasingly difficult, with JP Morgan expecting used car prices to fall by as much as 20 percent in 2023.

So, in terms of what you could do about this and how you could pay down debt during times where interest rates are increasing, here's what you need to know to start. I personally believe that one of the best ways to reduce debt as fast as possible could be simplified into six steps.

First, find out exactly what kind of debt you have. I have a feeling that most people who are bogged down by debt don't fully understand exactly how much debt they're in or what interest rate they're actually paying. So it's best to make a list of exactly what the debt is, where it is, and what the interest rate is.

Second, track all of your spending over the next 30 days. I think this is going to be an eye-opening experience to be able to see the cumulative effect of all your spending and see exactly where it's going—sometimes without you even being aware of it.

Third, after doing that, cut everything you don't absolutely have to spend money on. That means no TGI Fridays with the boys, no six dollar Starbucks Frappuccinos, and no rewarding yourself with DoorDash when you could just as easily pick it up yourself.

The fourth, depending on how much debt you're in, look into doing debt consolidation. Here's how this works: Let’s say you have twenty thousand dollars of debt spread between four credit cards and a personal loan with an average interest rate of 20. Well, instead of paying off each loan separately, you could get one mega loan and combine them all together at a lower interest rate than you would pay separately.

Or if you're really behind in those payments, you could try negotiating with a creditor to see if they'll lower the amount or work out a payment plan. In addition to that, you could also look at getting a zero percent interest credit card and then transferring the balance from another card onto that to save on the interest.

Usually, you'll pay a three percent balance transfer fee, but that is a lot cheaper than the interest rate you would otherwise pay. The fifth, with all of that extra savings, use the Dave Ramsey snowball method or Avalanche method to pay it off.

The first strategy suggests that you begin to pay off the smallest amount first and then slowly work your way up to the largest balance until it's all paid off. This gives you the psychological boost of seeing almost immediate results, and then with all the money you have left over, you could begin paying off even more debt.

If the second approach to doing this is what's called the Avalanche method, instead of arranging your debts by the total balance, you arrange them from the highest interest rate first to the lowest. This ensures that you're putting your money to its best use first, which should save you the most amount of money long term if you actually stick with it.

And finally, six, if you're still not saving enough money to pay down your debts and you've already cut back as much as you can, the only other option is to increase your income or take on a part-time job. I know it sounds obvious, but if you don't make enough money, it doesn't matter how much you save; you need to take on anything you can to be able to pay down the debt.

Just understand that this is going to be something short-term; you're going to have to get through it, and everything long-term is going to be okay. Overall, though, I have to say, even though household debt did skyrocket to the highest level since 2008, with an average balance of 142 thousand dollars, the good news is that most of that debt is tied to fixed-rate mortgages at a very low interest rate.

So it makes sense that debt is a lot higher today than it used to be. However, credit card balances are getting higher to compensate for steeper prices, and that is something to be concerned about with many Americans beginning to run out of money. That's why we should all be incredibly cautious about our spending throughout this next year.

reevaluate if you really need to buy something or look for cheaper alternatives to save the money. I know these are all good habits to practice at any point, but with the economy as volatile as it is, it's worth it to cut back as needed. Keep a consistent income, don't take on more than you could reasonably afford, and always, no matter what, subscribe if you haven't done that already.

So, with that said, you guys, thank you so much for watching! As always, feel free to add me on Instagram, and don't forget that you could get a free stock worth all the way up to a thousand dollars with our sponsor public.com when you make a deposit using the code Graham with the link down below in the description. Enjoy! Let me know what stock you get. Thank you so much for watching, and until next time!