Debt, Credit and Loans

Got debt? The holidays may be prime time for accumulating extra credit card debt, but here are ways to eliminate it quickly.

Uh oh! You did it, didn’t you? You used your credit cards to finance your holiday shopping! I’ll save the scolding, and instead advise you to bite the bullet and get rid of that unneeded debt NOW. Average holiday spending this year was anticipated to be around $1,154 per household. At 12% interest (the current average for credit card interest according to Bankrate), paying $100 per month toward your holiday debt would mean you’d be paying for that debt for 13 months! At $250 per month, it would still take you 5 months. Do you really want to pay for the joy of the winter holidays until Memorial Day?

Got Holiday Debt? How To Eliminate Debt Quickly

If you’re in a position to be able to just write a check to pay off the bill, then don’t hesitate — just do it. You’ll pay more in interest on the credit card than you will earn if your money is sitting in a bank. If you’re not in a position to write the check, here are a couple of debt reduction strategies to implement:

1. Try to find a new credit card that will give you 0% APR on balance transfers. Even if you intend to pay the debt off quickly, it’ll be a little less painful if interest isn’t accruing while you make payments. Once you’ve got the new card on hand, get rid of the old one.
2. Cut back. Cut way back. There shouldn’t be any unnecessary spending. Nix the dining out, trips to the movies and mall, manicures, etc., until the holiday debt has been paid. Also, make the payment to the credit card immediately upon saving the money.
   
   What I mean is this: if a friend calls and asks you to go to dinner but you turn them down, immediately go online and pay the amount you think you would’ve spent on that dinner, to the credit card company. It may sound silly, but knocking off the amount of a dinner plate — say a mere $30 each week in unnecessary expenditures — could save you over $1,500 extra each year. Bottom line: this habit alone will pay off that average holiday credit card debt of $1,154 (assuming that spending is placed on credit, that you don’t mind taking 10 months to pay things off, and that you’re using a 0% interest card), and also give you $300 towards next year’s holiday spending!

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In a previous life, I went from being in debt to becoming a debt collector. From this experience, I learned a few things about debt collection practices.

 
While in college, I racked up a mess of credit card debt. After college, unable to pay all of it, I instead opted to pay none of it. It took very little time for the collection calls to start rolling in. At first, most of the debt collectors were pretty nice, taking my word for it that I just forgot to mail the payment, but would send it off the next day. As months passed, accounts were charged off and sold to outside debt collection agencies, and the demeanor of the collectors changed. I took a few calls that were outright harassing. Yes, I was fully a deadbeat, but I had rights. I just didn’t know it.

After a few years of doing nothing about my debt, I finally grew weary of the associated insecurity and took a second job as a bill collector for a very well known consumer lender. Oh, the irony!

At first, it was a pretty sweet gig. I worked accounts that were under 30 days delinquent, which meant that I collected a lot of telephone payments — the ultimate goal. Unfortunately, after only a couple of months, our call center focus shifted to accounts that were 90+ days delinquent, and the job became far less pleasant.

The Debt Collection Dialogue

Many calls went something like this:

Me (in my most personable and sincere voice): “Hi, Mr. Jones! My name is Emiley and I’m calling from Acme Financial. How are you this evening?”

Mr. Jones: [click]

Others went like this:

Mrs. Peabody: “You a——s called me night before last. I told you then that I don’t have any money!”

Me: “I see that we did call you, but because you were unable to make a payment, we need to stay in close contact with you. If you’re able to make a payment by telephone this evening, I can code your account so that we won’t bother you again.”

Mrs. Peabody: “You people can’t just call me every other night and badger me to pay! This is harassment!”

While at heart I agreed with Mrs. Peabody, I had been taught well what I could and couldn’t do as a collector, and I needed the job to get collectors off my own back.

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A look at the pros and cons of various money cards such as cash and credit cards, retail cards and gift cards.

Photo by Psuedo-Funny Screencaps featuring The Simpsons

Though it’s been often argued that card holders end up paying more than those who pay cash for their purchases, money cards do have some good features. It may be worth exploring them here.

In the past few years, it seems like money cards have overtaken cash as a way to pay for purchases — and no surprise there, it’s pretty convenient to use them. I actually carry along a number of cards, including membership cards to stores. These financial tools are wonderful for their rewards and their convenience, but be very careful about the downside! Let’s take a closer look at the types of cards that are out there, how they can benefit us and what things we should watch out for.

Debit Cards and ATM Cards

The Pros: Debit cards top the list for me. I can pick up a few things at Walgreens and swipe my card for fast transactions. The money’s taken out of my checking account, so I don’t have to worry about interest rates or finding the ever-elusive coins at the bottom of my purse. Of course, I have to watch out that I don’t exceed my balance or the bank might impose an overdraft fee on me. And I can always use my debit card at ATMs to get cash on the fly.

The Cons: There are some concerns with using debit cards, including the fact that you may be ultimately responsible for how your card is used (legitimately or otherwise). Unlike with credit cards, there is no extra buffer to protect your funds, and no company to turn to (other than your bank) if problems arise. Also, there may be restrictions with using a debit card for making reservations for a variety of things such as hotel rooms, rental cars and so forth. Merchants often place a hold on your money to book reservations, thereby freezing some of your funds until the hold clears. Ah, the price of convenience!

Now if you want an alternative to ATM and bank debit cards, then why not take a look at the MoneyExchange RevolutionCard? You can get one by opening an account with Revolution MoneyExchange. If you’ve got funds with this online payment management system, then you can use their card to access your money.

I just got my RevolutionCard in the mail the other day, and I can use it at ATMs and at participating stores like Office Depot and Belk. Since it’s not directly withdrawing funds from my checking account, it adds another layer of security to my purchases, and I’m not paying finance charges as with a credit card.

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We’re facing a new age of tighter credit, loan limits and credit card defaults. What does the future hold for us consumers?

Photo by Dane Sparza

 
With millions of Americans deeply in debt, it is unlikely that our nation’s financial crisis is nearing its end. For the average American family facing an increased cost of living, decreased value of retirement accounts and less available credit in the marketplace, the situation looks pretty bleak.

The report entitled, “Credit Cards at the Tipping Point” supports the idea that the next year will bring a dramatic rise in the already increasing rate of credit card defaults. The report indicates that banks will likely write off as much as $100 billion in bad credit card debt, as 10% of all credit card balances will become uncollectible.

It’s Tougher To Get Credit

As the financial climate in the U.S. has deteriorated, many people have become increasingly reliant on their credit cards. Mortgages, HELOCs, and even car loans now require stellar credit scores (case in point, GMAC Financial Services has announced that they will only write new contracts for customers with credit scores of 700 or higher), as consumers have turned to their plastic to maintain their lifestyles and, in some cases, to cover even the most basic of living expenses.

A large part of this problem was caused by the card issuers themselves. Much as mortgage lenders qualified borrowers for more house than they could truly afford, allowing even the paperboy to own a McMansion, many credit card issuers used techniques such as “fee trapping” (when the company approves a low-limit card with a high interest rate in hopes that the limit will be exceeded and the consumer becomes trapped in a cycle of paying over-limit fees and finance charges) to lure in people with poor credit who might otherwise only qualify for a secured card. Other tactics, such as universal default penalties, shortened grace periods, and increased late fees also helped to put consumers deeper into debt.

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Credit and debt are financial tools that when used well, can help you succeed financially. It helps to know the difference between good debt vs bad debt.

Not All Loans Are Created Equal

A few years ago, I decided to earn my master’s degree in education. My first step was to go to this government’s site on financial help for education.

I filled out the application after learning that my university would charge me $15,000 for the whole process online, not including books of course. The school was paid directly by the Department of Education during the two years it took me to complete the master’s degree. Check this out for detailed information regarding federal education loans.

Where my student loans worth it?

Are you kidding? My school immediately increased my salary as a teacher by $3,000 annually. So even without any other help, I would have paid back the loan in 5 years. I had, however, a ‘hidden’ ace which was something I took on and which I wholeheartedly recommend to prospective teachers: teach in officially declared poor areas of the country. My loan was thus ‘forgiven’ (i.e. paid by the government) — a clear case of ‘your taxes at work’.

Good Debt: Student Loans

Student loans are typically recognized as good debt. But please remember that with educational costs — you get the most bang for your buck when you consider a couple of conditions:

1. You are certain that you’ll work in your field of study.
2. Your future salary will be sufficient to PAY for education loans you take. Unfortunately, few college bound students plan ahead that far.

Once you graduate, live off your wonderful and caring parents whenever possible and minimize your expenses. After a couple of years they will, quite likely…and very politely, ask you to move out. They need their privacy after all and your loud parties on Saturday night (or the extra laundry) may begin to exhaust their patience. But, by then, you’ll have repaid a big chunk of your loan if you’ve acted smart by not overspending.

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What can we do to survive this credit and mortgage crisis? Plenty.

Photo by The Silver Penny

 
Did you know that foreclosures were up by 79% in 2007 from the year before? Subprime loans, predatory lending and the housing bubble have all led to a financial crisis of global proportions today. So how can little people like us pull through this major mortgage crisis? Here are a few tips to help get our heads above water during this period:

Tips To Survive The Mortgage Crisis

1. Pay The Mortgage Off First

Let’s start with prioritizing how we pay our bills. Here’s the order in which I pay my bills:

1. Monthly mortgage first!
2. Groceries, electricity, heat and primary utilities
3. Phones, cable and internet, and less important utilities
4. Insurance premiums — they need to be up to date to protect our assets
5. Car loan and credit cards

While some bills may remain unpaid causing a major impact on your credit rating, losing your home is the ultimate problem and should be your biggest concern. Remember that paying the mortgage on time keeps a roof over your head so it should always be a top priority.

2. Cut Costs And Tighten Your Belt

Now is not the time to purchase designer handbags, new cars or go on that luxury vacation unless you are completely financially secure. Historically speaking, the economy is likely to get worse before it gets better, so it’s best to stay financially conservative and save the money we have by putting away our credit cards (at least, for the time being). Some suggestions? Rent movies and cook dinner at home instead of going out on Friday nights. Try to focus on covering your basic expenses and maintaining the best possible credit rating.

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Want to build your credit? Here are some thoughts on how to establish credit for the first time.

How Do You Begin To Establish Credit?

I remember trying to establish credit in the U.S. five years ago when my wife and I returned from working in Mexico for 20 years. Our Social Security numbers returned the same message from every store where we tried to get some credit: “No data available”. So how does one begin to establish credit and finally obtain a credit card?

One of my colleagues at the school where I worked told me something that I had a hard time believing: “No worries, you’ll be swamped by credit cards offers 2 years from now. If you want a head start then build your credit by going to a store that will give it to you at a high interest rate. Buy something cheap that you need for the apartment.”

First Step: Buy Stuff From Places That Will Accept Credit. Start Small!

This story applies to most young people who work for the first time and need to establish credit. Of course, in my case, we were both over 50 and salespeople could not believe that we had no history of credit. We did, but it was so long ago that even the credit bureau had forgotten about it.

So we went to the local furniture store and bought a big queen mattress and the frame to hold it. The salesperson was used to people coming from Mexico, and as long as they could produce a paycheck stub, she was happy to charge outrageous interest rates. And so we went from store to store looking for a chance to open an account. Sam’s said no, J.C. Penney wouldn’t even consider it, same for Sears (I think the lady was trying not to laugh), and so instead, we turned to smaller stores. Slowly but surely, we built up our credit with little mom and pop stores till we were able to buy a house 3 years later with no money down.

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