Europe may be thousands of miles away, but its debt troubles weigh heavily on US markets. Remember the uproar that ensued when the U.S. lost its coveted AAA- credit rating this August? Well, watch out: credit-rating agency Standard and Poor’s decided last night to put 15 of the 17 European countries that share the euro currency on “negative credit watch” (financial speak for “50-50 chance we’ll downgrade you soon”). But does the credit crisis in Europe mean anything for investors here at home? You bet.

You might have noticed the value of your 401K or mutual fund bouncing up and down more than usual. (In September and October you probably saw it fall hard, only to see it rally in November.) You can thank the troubles in Europe for a large part of this volatility. Even portfolios with few European holdings may see wild swings, since uncertainty in Europe feeds into doubts about much of the world’s economy.

Europe’s Got Issues

It’s no secret Europe has a debt problem. Several of the nations that share the euro currency have rung up tons of debt in the last few years. It’s a simple problem, really: they don’t earn enough money (through taxes) to cover their expenses. Take Italy, for example: Its debt of 1.9 trillion Euros is equal to 120% of all the goods and services it produces in a year! Investors are nervous that the Italians might one day just give up and default on their loans, so they are requiring them to pay more in interest to borrow money. But that just makes things even harder for Italy, since higher interest rates make it harder to pay down the debt — and that makes it even likelier that they’ll default. Ouch.

Standard and Poor’s (S&P for short) is one of three major credit rating agencies who assign a risk level of the bonds issued by a country or company, creating a rating score(AAA is the highest score, representing the lowest risk). The higher the rating, the lower the interest rate paid. It is just like your credit score: You will normally pay less interest on your credit card if you have an 800 vs 600. (Have you updated your credit score on Mint.com yet?)

Yesterday, S&P threatened to lower the credit ratings of 15 out of the 17 members of the eurozone (the other two members, Greece and Cyprus, are already in trouble).  S&P wants the eurozone to come together to solve the structural problems with the common currency. If they don’t, then everyone will suffer. So even countries like Germany and the Netherlands, which have a relatively manageable debt load, could now stand to lose their AAA rating – something that the market hadn’t anticipated.

European Contagion?

Stock and bond markets around the world are more interconnected today than ever before. There is a fear that an S&P downgrade could cause investors to abandon the European debt market, which would not bode well for the continent. If the Europeans fail to solve their problems, the common currency could collapse, throwing Europe into recession — which would have repercussions here at home. For example, companies in the US that do business in Europe could see their orders dry up, forcing them to lay off workers. That could start a chain reaction, eventually pushing our economy into the dumps!

News of the potential downgrade caused stock markets in Asia and Europe to fall this morning. Here at home, stocks opened lower. While the fundamentals of those companies haven’t changed, the market fears that a possible recession could wipe out their future earnings. That means your stocks are probably down today. If you have a mutual fund, chances are it is down today because a lot of mutual funds invest only in stocks. If you invest in electronically traded funds (ETFs) to get some exposure to the hot commodity market, you too are seeing red.

S&P will be watching what happens at a critical meeting of European leaders scheduled for this Friday in Brussels. If S&P is happy with the solutions the Europeans come up with, they will leave the ratings alone. But if the Europeans fail to live up to their expectations, they’ll likely be downgraded. If you want to know where your stocks are headed in coming weeks, you might want to brush up on your French.

Cyrus Sanati is a frelance financial journalist whose work has appeared in dozens of leading publications, including The New York Times, BreakingViews.com, and WSJ.com. Follow Cyrus on Twitter @csanati

Portugal, Ireland, Greece, Spain and Italy have all had their turn in the credit crisis spotlight lately. But no matter which European country markets cast their scrutiny upon this week, it’s debt that’s at the heart of the issue. Click on “expand infographic” above to view how the debt of major European countries has evolved from 2000 to 2010.

As the world recoils from this historical event, people should know the United States has not been alone in being downgraded from the crucial AAA rating. In the 1990s, Japan lost its AAA rating, and it was further downgraded again earlier this year (it is interesting to note interest rates for Japanese debt actually decreased since its downgrade). In 2009, S&P downgraded Ireland’s AAA rating, and the latest Europe crisis countries, Italy and Spain, were rated AAA in the 1990s as well. With that said, there are only 18 countries remaining that have the AAA rating with a stable outlook, and that number is getting smaller and smaller. (For related reading, see How The Credit Rating Downgrade Affects the U.S. Economy.)

Singapore
Singapore enjoys low inflation near 5%, a low unemployment rate around 2% and one of the highest GDP per capita rates in the world, currently at $49,321. Bolstered by its strategic location on major sea routes and investment in manufacturing and the financial industry, making up 26% and 22% of its economy respectively, Singapore’s economy also hit a high growth rate at 39.90% in March 2010, even surpassing China and India. It has since settled at an average quarterly growth rate of about 6.36%, which is still commendable compared to the United States’ anemic 1.3% for the second quarter. No wonder Singapore’s debt is rated AAA, as this high-growth, low-unemployment and low-inflation country shows stability and the ability to pay its debts.

Norway
Norway has a mixed economy with an abundance of natural resources; this includes fishing, hydroelectric power and, more predominantly since the 1970s, petroleum. Taxes are high, but they provide a high standard of living in return. For their efforts, Norwegians enjoy a low unemployment rate of about 2.8%, inflation about 1.6% and a GDP per capita of $58,714. All of these factors combined with a low debt-to-GDP ratio of 44.7% makes Norway highly likely to pay back its debts.

Germany
The largest economy in the eurozone also happens to be rated AAA. It is the fifth largest economy in the world and boasts an inflation rate of about 2.5%, a low unemployment rate of about 6.6% and high GDP per capita of $35,374. Germany’s economy is an industrial powerhouse, home to companies such as BMW, Volkswagen and Porsche.

Canada
Canada navigated the credit crisis better than most with its strict banking laws and regulations, avoiding subprime mortgages and requiring higher down payments on homes. Because of this, it is regarded as having one of the strongest banking systems in the world. With its abundance of natural resources, most notably oil, Canada has prospered with the recent volatility in oil prices. It enjoys a low inflation rate about 3.2%, low unemployment rate of about 7.1% and has a high GDP per capita of $39,078. It is interesting to note that Canada was downgraded in the 1990s, but has since regained its AAA status through budget cuts and fiscal discipline.

Denmark
This small nation of 5.53 million people has very few natural resources. In fact, almost its entire economy is based on human resources, or the service sector. It has not adopted the euro, choosing to stay with its Danish krone so it has more flexibility with its currency. Additionally, its taxes are one of the highest in the world, with a value added tax of 25% placed on most goods and services and income tax sitting at 59%. However, it can say it has a low Debt to GDP ratio of 43.6%, an unemployment rate about 4%, inflation rate about 2.5% and a GDP per capita rate at $36,845. This stability and low debt makes it almost certain it will pay back its obligations.

Other AAA Rated Countries

Others nations with AAA ratings are: Isle of Man, Liechtenstein and Guernsey.

The United States in comparison has a debt-to-GDP ratio of 93.2%.

The Bottom Line
Although the United States has been downgraded to AA+, there are a few more countries that still retain the status. It is also not the end of the world, as countries such as Canada have regained their AAA status after being downgraded.  One day the United States may once again join that prestigious list.

Countries That Still Have the Golden AAA Credit Rating was provided by Investopedia.com.

Some would argue that the recession started well before December 2007 — and many would argue that it’s hardly ended yet. Indeed, if you look at unemployment and the housing market, you’d hardly think we are doing much better today than we were during the recession’s strongest grip. So we decided to take a look at the major events of the past three years. For the highlights, see our infographic — the Recession Timeline Diorama.

For more personal finance visualizations see byJess.net.

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<p><a href=”http://www.mint.com/blog/trends/the-recession-timeline-diorama-2007-2010″ mce_href=”http://www.mint.com/blog/trends/the-recession-timeline-diorama-2007-2010″><img class=”alignnone size-full wp-image-12783″ title=”Recession Diorama” src=”http://www.mint.com/blog/wp-content/uploads/2010/11/diorama.jpg” mce_src=”http://www.mint.com/blog/wp-content/uploads/2010/11/diorama.jpg”/></a></p> <p><a href=”http://www.mint.com/” mce_href=”http://www.mint.com/”><a href="http://www.mint.com/">Personal Finance Software</a></a> – Mint.com

Living beyond your means is a sure way to guarantee financial ruin. Today, millions are dealing with the fallout from artificially-inflated real estate values and accessible, unsecured credit. For those recently (or still) in this situation, a number of temporary solutions were once readily available – refinancing, taking out home equity lines, taking on additional credit cards – but, these quick fixes all had one thing in common: they only delayed the inevitable. But it’s one thing for an individual to act irresponsibly, and quite another for an entire state.

The State of California resembles a classic spendthrift; the world’s 8^th largest economy, was long characterized by its numerous economic opportunities, inviting business climate, and bustling real estate industries. But, the state was also regularly in deficit for the last several decades. This did not seem to matter. The state continued to borrow against future revenue, in order to finance its budget requirements – much like an individual would borrow against the speculative increase in their home’s value to pay for existing bills. The way they were able to do this, was by the sale of short-term notes for cash (similar to bonds).

The logic behind these actions was that growth was always expected: businesses were going to continue to grow, unemployment would be always be low, and income tax revenues were going to continue to increase. Most importantly, existing and new debt would always be recouped by future profits. If this sounds familiar, it probably is. For Californians that witnessed their home values skyrocketing between 2002-2006, taking out new loans for motorcycles and boats, or for kitchen remodels or expensive vacations almost made since, even if what you earned did not justify these costs. Your house was a passive (almost magical) source of money from which everything would one day be paid off, and everything would once again be right with the universe

What Happened?

Starting with the real estate market slumping in 2007, the situation quickly become grim for the state with the credit and financial markets meltdown in 2008. Shortly thereafter, the State’s credit rating was reduced. Due to a lack of confidence in the short-term notes, their sales have slowed down considerably. And, in the face of a devaluing dollar and massive trade deficits, the Obama administration denied the state’s request to federally-back the state notes, citing that states are responsible for solving their own budgetary problems.

California’s general fund has also experienced sharp declines in tax revenue. Income tax revenues have dropped considerably since 2007; 2009 receipts alone, are expected to be over $1B less than the pre-year prediction – which was already lower than normal. The state is also experiencing (on average) $200 Million less per month from Sales and Use Tax revenues from pre-year forecasts. Also, the State has the nation’s highest level of unemployment at 11.5% (68,900 jobs were lost in May 2009 alone) – which is also a 30-yr high for CA. This has exacerbated existing budget issues, with a higher-than-normal amount of unemployment payments being dispersed to a larger non-working population.

The condition of the state is analogous to an individual simultaneously experiencing a reduced income, either because of mandatory vacations, or hour cuts (or even becoming occasionally-employed), and an increase in their expenses (an adjustable rate mortgage, increased credit card APRs, etc). Not surprisingly, this has increasingly become the norm for many California citizens. The situation is at the intersection of circumstance and lackluster planning. Looking back at the last decade of California’s dynamic economy, we can now all see that things really seemed too good to be true, because, in fact, they were.

What This Means

Currently the state is facing a shortfall of over $27 billion, and this deficit is estimated to increase to $40 billion by the end of 2010.To put this in perspective, $27 billion is more than ¼ of the state’s general fund. Or rather, the state only has ¾ of the funds necessary to run at full capacity.

When the state legislature met in May to discuss wide-reaching budgetary cuts, it created a division among party lines: Republicans agreed to lower the income of state employees; Democrats strove to increase fees for select goods and services (cigarettes, oil wells). Governor Schwarzenegger, however, moved to generate revenue by borrowing from local governments. Because the parties involved at the state legislature were unable to come to a resolution, Governor Schwarzenegger has declared a Fiscal State of Emergency. What this means is that if a deficit is not solved within 45 days, the state legislature cannot act on other bills until this is resolved – in short, the state must figure out a way to substantially reduce this deficit, and/or find new money.

Unlike people, states can’t simply file for some type of bankruptcy protection. If the state were to default on its creditors, it will be in an exponentially worse situation. The state will lose a sizable source of regular revenue, in that investors would no longer want to invest here. Courting investors may not be the solution for the immediate crises, it will inevitably be required, should the state get back on track.

To make matters worse California’s labor market, does not show signs of having hit rock bottom. Forecasts by Beacon Economics, the UCLA Anderson School and Chapman University estimate that unemployment may near 13% by year’s end; and according to Esmael Adibi (Chapman), the recession, “…at the state level should end by mid-2010, when job creation will start.”

How the State is Coping:

Because of the grim diagnosis, the state will be forced to enact a number of the cuts in an effort to shrink the deficit. There will also be a number of new and increased taxes that will be levied on citizens, to help bare the cost. Some of the more noted cuts and taxes include:

- Mandatory furloughs for many state employees Feb 2009 – June 2010. This is estimated to save $1.3 Billion. (The partial government shutdown also will lead to a third furlough day for 235,000 state employees, bringing their total pay cut this year to about 14%).

- Additionally, layoffs, reductions and other efficiencies will be instituted in an effort to cut payroll by 10%. This is estimated to amount to as many as 60,000 state jobs.

- As of April 1, 2009 Sales tax was increased by 1%.

- As of July 2, 2009 the State began issuing IOUs for state tax refund payments.

- The Vehicle License Fee (VLF) rate increased from 0.65 percent to 1.15 percent from May 19, 2009, to June 30, 2011.

- More than $3 B in cuts to public education.

- Nearly $1 B in cuts to public health care.

Prospective Cuts:

- As many as 200 of California’s 279 State Parks may be closed.

- A suspension of Cal Grants and Cal Works – state programs that provide health and education services to low-income families.

The Takeaway:

The type of problems facing California lawmakers are reminiscent of those presently faced by millions of Americans and their households. Similarly, the state’s response is largely a reaction to market conditions; the same can be said about so many Americans, in that we only fix what is broken. Expense management is perhaps the most important lesson learned on one’s way to financial maturity, and unfortunately for so many it usually only comes from past failures. There are a number of lessons to be learned at the administrative level, and I think I speak for most Californians when I say that I hope our leaders are wise enough to find a solution that enables our getting out of this situation, but also makes it more difficult for the state to get in this type of a mess in the foreseeable future.

Here are Mint’s guides on budgeting, investing and managing credit to help you manage your finances.

Sources:

http://www.latimes.com/features/health/medicine/la-ed-budget8-2009jun08,0,7552895.story

http://www.huffingtonpost.com/2009/07/02/ca-assembly-speaker-schwa_n_224673.html

http://www.latimes.com/business/la-fi-california-jobless20-2009jun20,0,3863292.story

http://www.bizjournals.com/sacramento/stories/2009/06/29/daily29.html

see part 1: The Descent into Credit Card Debt Hell

Here’s Mint’s advice on how you can lift yourself out of the abyss.

For more personal finance visualizations see: WallStats.com

Here’s Mint’s credit card guide to help you lift yourself out of the abyss.

Don’t let credit card debt consume you. Mint.com can help you find a card that works for you.

For more personal finance visualizations see: WallStats.com

Interested in mortgage rates canada?

Paul Keleher

As the credit crisis winds toward its inevitable conclusion, the number of customers unable to pay off their credit card each month is swelling. And credit card companies, facing the very real possibility of customers defaulting entirely, are now willing to come to a settlement for substantially less than the amount owed. With the credit card companies ready to deal, here’s what you need to know to get your own personal bailout.

Credit Cards are Unsecured Loans

Credit cards are a form of unsecured loans. What does this mean in layman’s terms? An unsecured loan is a loan in which a borrower is not required to use an asset as collateral in order to receive credit. In contrast, secured loans (mortgages or auto loans, for instance) use collateral that may be repossessed should the borrower default on their payments. By the nature of their business models, credit cards and other forms of unsecured loans typically offer shorter payback terms and higher interest rates.

Bailouts for the Delinquents?

With the recent rise in unemployment and wage cuts, credit card debt delinquency has significantly increased and shows little sign of slowing down. So what’s a credit card company to do? Bail you out! If you fall into the delinquency camp, there is a good chance that you may be able to negotiate an agreement with your card provider to pay off a portion of your debt in exchange for them wiping out the rest.

Increasingly, consumers are reporting that they are getting offers from their card providers to wipe out debt in exchange for payments. Few creditors are admitting to the practice. American Express and Bank of America admit to deciding on a case-by-case basis whether to accept partial payments. Other companies are keeping their lips shut, but their trade group, the American Bankers Association, acknowledges that settlements are becoming more common.

What not to do

Let’s be 100% clear. If you are NOT delinquent on your debt, it would be extremely bad practice to purposefully go into debt in the hopes to get a free ride and have your debt wiped out. There are no guarantees that any company will wipe out your debt, and the risks and costs associated with trying to pull this trick off are simply not worth it.

If you are delinquent, it would be equally as risky to go on a spending spree in the hopes that your debt will be forgotten. Be smart and ethical. Debt settlements can still show as a black mark on your credit history, and this is bad news for you. Debt settlement should be resorted to only at last option.

How to Settle your Credit Card Debt

You’ve done everything you can to get out of debt, but just can’t seem to dig out of the hole. Your only option is to settle. There is no exact science to settling debt with every credit card company, and a lot of your success will come down to your negotiation skills. This is tricky business and if you’re in doubt, you may want to consult with a lawyer or certified financial professional. Here are some suggestions if you’ve decided to go down this path based on stories that we’ve heard from others who have succeeded.

1. Stop making payments: if you’re paying off at least a portion of your debts, why would the credit card company have any reason to settle with you? Wait at least 60 to 90 days prior to making an offer.
2. Build enough cash to offer a settlement: at the same time you’ve stopped making payments, you’re going to have to have money on hand to make an offer. Perhaps you sell some of the luxuries that got you into this mess in the first place or get a second job.
3. Make your first offer: explain your situation and make an offer. 25% is a good starting point. The credit card company is probably not going to accept your first offer, so it’s good to start low. You may get a counter offer at this point – but be patient in your negotiations.
4. If you increase your offer, ask for more: ask for any black marks on your credit report to be removed in your negotiations.
5. Get it in writing: get your agreed upon terms in writing from the credit card company.
6. Make your payment: pay by money order and send via certified mail so that you can verify that you fulfilled your end of the agreement.
7. Tax significance: you will get a 1099 from your credit card company and must claim the forgiven amount as income on your tax return.
8. Learn from your mistakes: if you can’t get your credit history wiped clean, the ‘debt settled’ mark will stay on for seven years past settlement. This will result in you having difficulty getting good credit terms during this time. Learn from your mistakes so that this does not happen again.

For more of GE Miller’s writing, visit personal finance blog 20somethingfinance.com.

Here’s Mint’s credit card guide and credit card calculators to help you manage your credit.

Leo Reynolds

Credit or debit? – an important question for those trying to come out ahead in recessionary times. The answer can be a little complicated. It depends on a few things, namely, your spending habits, your ability to pay your bills on time, and the total dollar amount that you pay with debit and credit. These are the variables that you can control. Unfortunately, they’re not the only ones.

What remains to be seen are the clever tricks credit card providers will play in light of the major reform that was recently signed into law by President Obama that will go into effect in 2010. About the best you can do is take advantage of the existing rules and set yourself up for future financial success.

An Easy Choice for Some

For starters, those whom the credit card companies have feasted on can be packaged into one of the following categories.

Group #1 – Buys a little or a lot, carries a balance, pays on time.
Group #2 – Buys a little or a lot, carries a balance, doesn’t pay on time.

If you’re in one of these two groups, the answer is simple. You have been targeted. Cut up your credit cards now. If you’re using credit to pay for things you can’t afford, you are digging yourself a big hole. Even with the new regulations that will go into effect next year, credit card companies will still be able to charge late fees and whatever fee they desire. Don’t let them. Switch to paying with debit. The “I need a credit card to survive” argument is a pretty weak one, regardless of circumstance.

A New Target?

Where it gets more interesting is when you consider those who have used cards responsibly. They fall into one of the following two groups:

Group #3 – Buys a lot, no balance, pays on time, uses credit to get rewards.
Group #4 – Buys a little, no balance, pays on time, uses credit to get rewards.

The question of credit or debit is not quite as simple for these responsible bill payers that have used credit cards as a means to reap financial reward. Creditors have long offered rewards to target these consumers. In theory, it should be safe to assume that those who have credit cards for their rewards are responsible bill payers – if you’re paying 15% interest on 2% rewards, you have some things to sort out.

With the industry set to take a financial hit on regulations aimed to protect those who are typically hit with fees and high interest, there has been mention of industry backlash against the users who have been responsible and not contributed as much to the credit card companies bottom lines. It won’t be long before the industry responds with new or old ways to make up for lost revenue. If annual fees are re-instated or rewards are cut back, those who have a choice of credit or debit and may have to make some decisions regarding which they option they choose.

Debit Card Rewards – A Game Changer?

To make matters more interesting, many debit cards have begun offering rewards in the last few years. Debit card rewards tend to be a little less enticing than credit card rewards, however. Banks generally offer one point for every $2 spent with a debit card, compared with one point for every $1 spent with a credit card.

It’s worth noting that many debit card rewards programs require you to use the “signature” option of your card, which means the card is swiped, you sign for the purchase and the transaction is run through the merchant’s processing system, versus punching in a PIN code. This is because the bank collects an interchange fee for that transaction from the merchant, which would be less if you paid with the debit option using your PIN. The bank then uses those fees to offset the cost of the rewards program.

Additionally, many debit rewards cards are charging annual fees. Those that don’t tend to offer highly scaled back rewards. Less rewards, annual fees, and the possibility of getting dinged on fees for going below your checking account minimum balance? This model has a little work to do.

Seeking Optimal Return at the Lowest Expense

Regardless of how the industry changes the fees and rewards for responsible card users, the goal here should be to get the highest total return. If you spend a lot (group #3) and benefit from hundreds or thousands of dollars of rewards each year, it may make sense to eat the expense of an annual fee and use a credit cards, both of which should point towards bigger rewards.If you don’t spend much (group #4) you may want to opt for a debit card or credit card with no annual fee, even if the rewards are small. Whichever way you choose, it is important to pay your bills on time, not carry over a balance, and stay above your minimum in your checking account.

For more of GE Miller’s writing, visit personal finance blog 20somethingfinance.com.