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The credit conversation


Personal lending occupied a completely different world just two years ago. Floating on easy credit and subprime loans were the way for some, and then the bubble burst on those unsustainable practices, and that world changed.

Today, our economy is still recovering from the Great Recession, and economists predict that we still have a few more years of hard work ahead of us.

With the shifts in the financial landscape, economic uncertainty and low interest rates, individuals are now left wondering what this means for them. At the very least, this is a prime time to talk with a private banker and create a plan for the financial future-and the strategy session should start with a conversation about credit.

One reason is that what was right for individuals five years ago may not be the right choice now. Markets shift, and it's important to periodically survey the financial landscape and lay fresh groundwork to prepare for new opportunities.

Know your bank.
Sound financial planning is built on solid financial and banking relationships, not individual transactions, and those relationships are built on knowledge and trust. Private bankers should be privy to the big financial picture of their clients, so they can help them make decisions that fit their goals and benefit their portfolio. Likewise, individuals should know the financial strength of their bank.

Check the bank's reputation with trusted advisors and reputable third-parties. Read their annual report and ask about their metrics, including asset quality, loan to deposit ratio, tier-1 capital and earnings growth.

In addition, individuals should evaluate the strength of their personal banking relationships to make sure their financial partners are focusing on tomorrow's financial decisions, not today's transaction.

Don't make credit decisions in a vacuum.
No financial decision should be made without knowing the big financial picture. In a credible banking relationship, a private banker works alongside an entire team of experts to determine the best lending solutions for investment, tax and retirement purposes while taking into consideration the overall wealth and estate plan.

Moreover, those relationships should extend beyond the walls of the bank-to accountants, attorneys and tax advisors. Good financial partners play well with others, leveraging their specific areas of expertise to bring the best solutions to an individual's total financial plan.

Create a customized credit plan.
Once individuals have vetted their banking relationship, it's time to start talking about a financial plan and how leveraging credit can help them meet their goals.

The truth: most people don't proactively manage the borrowing side of their personal balance sheets when they plan to purchase art, a luxury vehicle, a business or a second home. That may stem from not knowing all of the varied credit options available.

A private banker helps individuals explore and customize lending solutions to match risk and best leverage assets, which provides them with options that may extend beyond the ones commonly offered in the marketplace.

Get a financial checkup.
Once a plan is in place, individuals should then drill specific credit opportunities into their portfolio and their strategy. A private banker helps individuals explore specific solutions to optimize their financial and tax situation and bridge gaps in their overall financial plan.

As part of that financial checkup, individuals should evaluate the biggest loans in their portfolio and optimize them for their financial and tax situation.

Interest rates should also be evaluated to determine if the rate environment is conducive to locking down a low and secured fixed rate on mortgages for a home, second home or investment properties. This is the most proactive and, in the long-term, can be the most beneficial move for an individual's financial future-and one that helps protect the portfolio against inflation.

Prepare for the unexpected.
Most have heard the adage: the time to borrow money is when you don't need it. A line of credit is an important tool to help individuals prepare for the unexpected and manage their overall financial picture.

Lines of credit can be used for a wide variety of purposes, including major ticket purchases, home improvements, education and medical bills. Additionally, lines of credit can provide peace of mind when unexpected expenses occur.

There are many types of lines of credit available in the market today. The most familiar is the home equity line of credit (HELOC), which allows an individual to borrow against the equity in their primary residence. In many circumstances, the interest paid may also be tax deductible.

Another example of a line of credit is one that allows individuals to use their investment portfolio as security. This can help to manage cash flow or take advantage of opportunities while still allowing them to keep their investment portfolio working on their behalf.

Buying a business, starting a new career, refinancing a loan-credit can expand buying power, life choices and create harmony in cash flow. Now is the time for individuals to talk with a professional who can ensure they are taking full advantage of the many credit solutions available to them while also making sure that their banker is providing holistic advice related to their overall wealth plan.
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Joe Schmidt

Joe Schmidt is a senior vice president for UMB's Investment and Wealth Management division in Denver. Joe may be contacted via email at joseph.schmidt@umb.com.

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