Limiting the Damage
Recently, Steve Bucci, who is the president of CCCS Credit Advisors and writes The Debt Adviser for bankrate.com, answered a reader question on The Augusta Chronicle.
Question:
I recently graduated from college and would like to try to fix my credit-card debt. One card is in collections and one charged off. I can afford to pay this off now, but don’t want to pay them if it’s not going to help my credit score.
Can I get them to agree to change the status from “charged off” to “paid in full” if I pay them or will I just help them find me so the calls can start all over again? - Stephanie
The Bad News and the Good:
Notations such as “collection” and “charged off” on your credit report raise a red flag to potential lenders and can seriously affect the terms for any loan you may apply for over the next few years.Although the negative information will remain on your report for the next seven years, as you add positive information from using credit and paying future bills on time, they will get smaller in significance.
Remember: The Rules Aren’t Written In Stone.
Let’s look at the card account that is in collections, but not yet charged off. This one is the less-serious of the two on the credit-damaging scale.The good news is that it may still be with the original creditor; or, if it went to an outside collector, the creditor might take it back. So I’d call the creditor and ask your question. They might want to know what happened, and I advise that you have something to tell them. If you just blow them off, they may well take it personally.
If you sound nice to them, they might change the status, although it isn’t exactly kosher to do so. You may have a better shot if they are a retailer and would like your business again.
The Real Problem:
The charged-off account is more likely to have been sold to a collector. If this is the case, then the card issuer will be reporting the charge-off and they will have closed your account already. The collector will be reporting the collection experience.In this case you would be stuck on the original debt, but the collector would be able to report that you are paying, and eventually the card issuer would show the charge-off as paid. This will be an improvement over what you currently have.
Look Out For Yourself!
Any leverage you have with the credit card companies is gone once you pay your bill, so the time to get them to listen to anything you have to say and make any concessions is before you pay.You may contact the creditors by phone first, but you will need to be sure that any agreements made by the company are in writing. Don’t assume that someone at the company saying they will take care of it is good enough. It is not. I am not implying that you will be lied to, but misunderstandings do happen.
If you don’t have caller ID and an answering machine, get one before you start, and learn your rights so you can tell legitimate bill-collection activity from illegal harassment.
What To Expect:
I know you are concerned about calls from debt collectors, and I won’t lie to you: You may have to put up with a certain amount of collection calls before this is resolved. Within the limits set by the Fair Debt Collections Practices Act, they are entitled to contact you. After all, you owe the money.
Teens Have Plastic, Will Use
Your teenager is off to college - or perhaps, she just wants some financial independence now that she’s in junior high. And so comes the request - nay - demand: “Mom, I want a credit card.”
You heard right. She didn’t say, “Mom I want a cookie.” Are you freaking out yet?
Fear not. There are options available for parents these days that guard against youthful impulse-splurges that just come back to break your bank account.
Rebecca Lindsey notes in her article, “Teens & Credit: A Recipe for Disaster”, that:
There are many types of cards available to teens, many of which are offered on the web. PocketCard (site sponsor) touts their unique product as “the driver’s permit of credit cards.” Through a partnership with Visa, PocketCard offers a Sponsored Payment Card for teens. The card limits spending to the amount of money placed on the card by the parents or sponsors. Money can easily be added by sponsors with a phone call or a visit to the PocketCard website, and spenders (the teens) have instant access to funds. PocketCard can be used wherever Visa is accepted.This summer, Visa introduced a new product geared toward teens that is called the Visa Buxx card. The Buxx card has sparked a great deal of discussion and debate about the merits of allowing teens access to electronic forms of payment. The card is basically a prepaid debit card, according to Michelle Singletary, a personal finance writer with the Washington Post. Visa has embarked on a marketing campaign to promote the Buxx card and bills the card as a “parent-controlled reloadable payment card”. The card is already being issued by many large banks and may come with an annual fee and transaction fees. Fees vary from bank to bank.
There are other cards available that fall under the “digital allowance” category; these cards allow teens to purchase items online without a credit card. By using a credit card to set up an account for their child, parents can limit the amount of money spent, where their teen can shop, and other interactions that are available.
Are you ready to retire?
“Debt-free Diva” Dee Dee Sung of The Detroit News recently answered a reader’s question about how to create a budget to prepare for retirement. Here’s part of her answer:
1. Determine your current monthly cash flow needs.
It’s easy to not know where your money is going, but it’s essential in order to determine your future cash flow needs.
For example, if you carry any credit card debt or have other loan payments, what will it take for you to pay off in full those debts in the next three years? Do you intend to be mortgage free? Do you have a current spending plan that itemizes all your monthly obligations?
Creating a budget can be tedious to set up and keep updated but in time it will become a habit. There are a number of money management software programs available that make this process simple.
It’s very important to tell yourself the truth about where your money is really going, and it’s usually the category called “miscellaneous” that can keep you in the fog.
You’ll also need to find out how much income you’ll be generating from your pension, OAS, retirement savings and other sources. It will be best for you to speak with a financial adviser regarding creating a plan that will allow you to enjoy your desired quality of life and, at the same time, tend to the preservation of your capital.
2. Get creative.
Formulate on paper what you want the next phase of your life to look like.
The truth is that you won’t know how much money you’ll need to comfortably live on until you decide what you’ll be doing with your time and what resources will be required.
If you’ve been at the same line of work for many years, undoubtedly you will have created a routine for yourself and perhaps not given much thought as to what you want to explore or what brings you passion. This can be a more challenging step as you’ll have to grab a “green light” attitude and start to dream out of the proverbial box.
Will you go into another line of work and be earning some form of income? Will you travel or perhaps go back to school? Ask yourself what an ideal day would look like for you, and from there, go about crafting the steps you’ll need to take to create such an experience.
Of course, nothing is cast in stone and plans are subject to change but the more clarity you create up front, the more prepared you will be.
Simplify: Listen For Your Drummer
Why should we be in such desperate haste to succeed and in such
desperate enterprises?
If a man does not keep pace with his companions,
perhaps it is because he hears a different drummer.
Let him step to the music which he hears, .
however measured or far away.
It is not important that he should mature as soon as an apple tree or an oak.
Shall he turn his spring into summer?
If the condition of things which we were made for is not yet,
what were any reality which we can substitute?
— Walden
Beware the Credit-Card Tricks
Not the most recent article, as it was published end of July, but likely something that is worth reading into. Not falling into more problems due to such tricks is always a good thing, and here, Smartmoney.com warns about Alarming Credit-Card Tricks:
Companies have begun increasing borrowers’ interest rates to 30% or more simply because they’ve applied for a mortgage or car loan, or because the company has decided the borrower has too much available credit. Consumer advocates warn of other trends like socking people with overseas fees even when their purchases are made with U.S. dollars, and penalizing them for not using their credit cards.
A quick overview of five of the sneakier tricks lists the following ones (more details are given in the article itself):
- Bumping up your APR when applying for a mortgage. Creditors often increase your interest rate when they notice negative activity — say, a late payment or an over-the-limit fee — on any of the accounts that show up on your credit report.
- Two-cycle billing. Two-cycle billing is a sneaky and complicated practice. It affects people who usually pay off their balance in full each month, but end up in a situation where they have to carry a balance for one or more months. A cardholder in this situation will end up paying more in interest than with a credit card that doesn’t have a two-cycle billing.
- Prepare to Pay More. In 2003, banking regulators issued a directive requiring banks to change their minimum-payment formulas over the next few years. The goal? To make people’s minimum payments higher to enable them to pay off their balance faster.
- Overseas Rip-Offs. Foreign-currency-exchange fees are also on the rise. Not long ago, many credit-card issuers — particularly big banks — charged fees equaling only 1% of overseas purchases, effectively passing on the 1% that Visa and MasterCard charge the bank for those transactions. Recently, however, most of the big banks have started tacking on an additional 2%.
- Not using the card brings punishment. Some banks are trying to make money from those customers as well. How? They increase their interest rates, so that when consumers make charges, they pay more in interest.
Four Journeys Into Debt Hell
Today I found this article on MSN Money, called 4 journeys back from debt hell. It looked like an interesting one to read, and indeed I was right in thinking so. This article details the experiences of four people who’ve been down the debt road, and managed to get out of it. I think it can be a useful, if not comforting read.
Here’s a few lines from each of these stories:
- Danielle Rhoades still remembers the taste of debt: peanut butter and jelly sandwiches and tuna fish. That’s mainly what she subsisted on for a year — after living more extravagantly during her first year in New York and racking up a $10,000 balance on her credit card.
- Vige Barrie recalls the endless phone calls from collectors. They were coming after the $60,000 she owed on more than 10 credit cards. The worst part: She hadn’t even been the one saying “Charge it!” Her husband had made and lost millions of dollars, she says, and during the last few years of their marriage, she let him use her cards because he had declared bankruptcy. “His line was always, ‘I’ll make another deal and pay this off in one fell swoop’”.
- Thousands of young adults could tell a story much like Paul Canady’s: “I got my first credit card by filling out an application at the university center because they were giving away free T-shirts. I didn’t think I’d actually get the credit card, and lo and behold, not only did I get it, but it also came with a $2,000 limit . . . In retrospect, that’s just absolutely ridiculous.”
- Owing roughly $100,000 was not Susan’s biggest problem. Underlying her distress was the shame of not being able to support herself and her daughter, despite having a doctorate and nursing and medical degrees. “I was a mess,” says Susan (not her real name) in a phone interview from Los Angeles. “I borrowed money — from individuals and from student loans — with no idea how I’d pay them back.”
File for Refunds in Time
So you got a little behind in your taxes. It happens to many of us from time to time. Maybe you aren’t worried, though, because you know that you’re due a refund rather than owing anything to Uncle Sam. He’ll hold on to it for you, right? Up to a point. Wrong, after three years from the time the tax was due, including extensions, your uncle doesn’t owe you nuttin’! Sad, but true, as many dawdling taxpayers have found out the hard way. Seems like they can come after you forever if you owe and don’t pay, or charge you interest if you don’t pay on time, and charge penalties and interest on the penalties if they aren’t paid in a specified period of time. But when it comes to letting go of the mistakenly overpaid taxes, the government has hard and fast rules, and it sticks to them. From a 2003 IRS news release:
In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim the refund within three years, the money becomes property of the U.S. Treasury. For 1999 returns, the window closes on April 15, 2003. The law requires that these returns be properly addressed, postmarked and mailed by that date. There is no penalty assessed by the IRS for filing a late return qualifying for a refund.