Here's an interesting way for companies to clean up their balance sheets: Pay troublesome customers to go away.
Seriously, that's what American Express (NYSE:AXP) is trying to do now. If you're an AmEx cardholder and you pay off your balance by April 30, they'll send you a $300 prepaid card.
Oh, and they'll cancel your account, too.
As you can imagine, this offer is being made to select cardholders. Selected how, I don't know -- if you get one of these in the mail, I'd love to hear about it -- but it might be folks who have carried a significant balance for some time. Or maybe it's folks with low balances but high credit limits. Those high limits represent exposure, and industrywide cuts in credit card lines have been expected for some time. But I don't know.
I do know this, though. The headline that AmEx has selected for this campaign is a masterpiece: "Simplify your finances."
No, I'm not kidding.
Cynical? Definitely. But that doesn't mean that I think it's a bad idea.
If ever there were a time to simplify
The arguments over who's most at "fault" for the present global economic mess will go on for decades, but one thing many observers agree on is that the issuance of credit -- in many different forms -- got seriously out of hand over the last several years. An incredible demand for debt securities led to an incredible effort to mass-produce them by securitizing all kinds of debt, most famously mortgages, but also credit card debt, among many other things.
And now, naturally, the pendulum is swinging in the other direction. As anyone who has tried to apply for a mortgage recently can tell you, getting credit is a little complicated right now. Even folks with ample down payments and gilt-edged credit histories are running into problems, as skittish banks worry about things that just weren't considerations before.
For instance, how valid is an appraisal made in the midst of an ongoing collapse in housing prices? Even if you put 20% down, if the house's value falls 30% from here, the bank is underwater (as are you). They don't like that.
It's not just mortgages, either. I mentioned American Express, but problems in credit card land go way beyond it. Can you name the three largest issuers of credit cards in the U.S.? Here, allow me: JPMorgan Chase (NYSE:JPM), Bank of America, and Citigroup (NYSE:C).
Not that any of those banks are struggling right now or anything, but it's just possible that they might want to reduce their exposures a teensy-weensy bit sometime soonish.
It's time for us to follow.
Pulling our own acts together
Many of us have taken big financial hits in recent months. Whether it's the big dent in your retirement portfolio or the evaporation of your home equity or a job loss (or for many, more than one of the above), odds are you've taken a hit -- and losing a credit card line would be adding insult to injury.
But we don't need to wait for the Fed and the banks and the market to get their collective acts together before we go to work on ours. If you're feeling like your margins of error are getting awfully constrained, taking any or all of these steps can help. Follow the links for more information on each:
- Create a realistic household budget. If you can't stick to it, it's no good. Learn more here.
- Pay down credit card debt. Enough said.
- Reduce expenses. Consider keeping your old car a bit longer, taking advantage of Freecycle and similar services, and taking your next vacation on the cheap.
- Invest in sustainable dividends. When the market's direction is uncertain and the economy is weak, blue-chip stocks with recession-resistant dividends like Procter & Gamble (NYSE:PG) and Consolidated Edison (NYSE:ED) are one way to increase your chances of gains no matter what the market does. (But avoid stocks like General Electric (NYSE:GE) and Wells Fargo (NYSE:WFC) that have heavy exposure to the credit markets, no matter their dividend yields, unless you're thinking in long-term terms and willing to take some significant risk.)
If you're just starting to dig into this stuff for the first time in awhile, that can be an intimidating list. Many (this definitely includes me, so don't feel bad if it includes you, too) look at lists like that and sort of shake our heads and walk away. It's too big a leap to take all at once.
But it's really important to pull your financial self together right now. The Fool's retirement guru, Robert Brokamp, recently put together a complete financial fitness plan that takes all of the above (and more) and breaks it down into tiny no-brainer tasks spread out over the course of a year. It's a great plan, produced with input from experts like Getting Things Done author David Allen, and it comes complete with a quick reference chart and occasional reminder emails to keep you on track.
It's all in the February issue of the Fool's Rule Your Retirement newsletter. Rule Your Retirement is a paid service, but you can get complete access to everything the service offers -- including this plan -- free of charge for 30 days by clicking here.
