Home Loan Focus

Thanks for the Money President Bush, It Won’t Help the Economy

• Author
• Brett Bumeter
• on January 18th, 2008 filed in Saving Money, financing, foreclosure, refinancing

This morning you might hear about President Bush’s Tax Cut stimulus plan.  He is releasing a newly revised stimulus plan today that would provide $800 for individuals and $1600 for married couples.  Bush hopes that this tax cut will achieve the same results that tax cuts in 2001 achieved as they helped to stave off a recession.  Back then the checks rolled in August and people spent the checks right away, buying lots of goods to help boost the economy either out of recession or in a way that cut it off before it really began.

I for one can and will use the money, but the reason why I will use the money is the same reason why this tax cut will not help the US avoid a recession.  I am going to take that full check and drop it on one of my credit cards.  That is the area where I have a need for an expense reduction both in monthly interest charges as well as in monthly payment requirements.  I am not going to go buy a new Wii or TV or clothes or any other stuff.  The reason is that I just bought a bunch of stuff for our household last month.  It was called Christmas and many Americans are going to do the same exact thing.

January is typically the month where people buckle down to pay off their holiday debt, bills, travel expenses etc.  This is not a spending month, this is a paying off debt month.

In the long term this tax cut is actually no tax cut at all.  Its more like a 1 year wash 2nd year tax increase.  That is because the tax cuts Bush wanted to make permanent are being completely abandoned to push this deal through.  So the money that we might benefit from today, basically comes out of our own pockets next year.  The year after that we pay more as well.

Now as  a general rule of thumb, when it comes to the government I’ll take a bird in the hand any day as its rare when the government actually delivers two in the bush, even when its Bush that is the one delivering.

How to Use Bush’s New Tax Credit to Save Your House from Foreclosure

Now I am going to put this money on credit card debt.  If you are working to save your own home from foreclosure, you should consider a different option.

A couple years ago if you had been given $1600, the smart money would have been to put that money into a directbuy home improvement, boosting up your kitchen, adding a bathroom or anything that might return you a home sales price of another $10k.  This year we are looking at falling home prices and possible foreclosures.  If you have a closing that is in trouble and the buyer is asking for some extra stuff, you might use the money to save the deal.  Unfortunately, that’s not likely for most people.

Odds are that if you are trying to save your home, you are better off using this money to make another payment and negotiate a refinance deal under one of the new FHA plans that is designed to help people on the cusp of trouble that have not yet defaulted.  If that isn’t an option, you might use the money to pay closing costs on an old fashioned (non-government backed) refinance. 

If you are not in trouble, you might invest the money in the stock market.  At about 12,000 the stock market is looking like a value play.  If stocks are not your thing, you might use the money to make an extra principle payment on your home or home equity loan.  This could save you money over the life of your mortgage.

Use the money to Get Green

If you wanted to remain true to the spirit of the tax cut, you might even use say $300 to go invest some money in LED light bulbs.  Upgrade the bulbs in your house with these energy saving bulbs and you will decrease your electric bill for the long term.  You can still use the remaining money to pay down debt, or just park that money in a rainy day fund.  Heck you could even bury some of that money in the back yard!

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