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High number of credit card debtors can’t recall how they accumulated their debt

In Uncategorized on March 21, 2013 at 1:43 am

That so many people can’t pinpoint where their charges went illustrates the dangers of credit cards

  Margaret from Illinois owed about $30,000 in credit card debt. She told me she’d had her credit card debt for years, but she couldn’t really pinpoint a time when it became unmanageable, or why it did so.  

“What originally caused you to consider filing for bankruptcy?” I asked.  

“Credit card debt,” she said in a flat voice.  

“What caused you to accumulate the credit card debt?”  

“We just needed them to pay bills to live.”  

“Was there a reduction in your income?”  

“No.”  

“Was there a big increase in some monthly expenses?”  

“No.”  

“Then how did you accumulate all that debt?”  

“I don’t know,” she said helplessly. 

  There are a great many clients just like Margaret who, when I ask how they ran up their credit card balances, really can’t explain it to me. It’s because they just don’t know how their credit card balances got so high. Usually, in a situation like this, the caller will tell me that he or she had carried and paid on credit card balances for years. The balances grew slowly but steadily, and then one day he or she suddenly had a tough time making a coming payment. And all of a sudden, they realize all their bills are a struggle to make. Hearing these stories, it’s as if the client is trying to remember a dream from the night before, but it only comes back in pieces.   What happens to a lot people who get into overwhelming credit card debt  is this: You first get the credit cards, and the terms are so easy and carefree. The average card only requires a minimum payment of about 2 to 4 percent of the outstanding balance. By accepting such ridiculously low payments, the credit card company can charge their high interest rates to whatever amount you don’t pay.  

Let’s say you sign up for a credit card and you go out the first month and ring up $1,000 in charges. The bill comes and the minimum payment is $20 (2 percent of the balance).   If you only pay that minimum amount, the high interest rate gets applied to the other $980 as you go forward. That’s where their huge profits come from. The credit card companies make their enormous profits when you don’t pay your bill. 

Numbers Never Lie

In Uncategorized on March 5, 2013 at 12:02 am

At my credit counseling agency, we preach the gospel of keeping a budget.

You may have heard the joke,
Keeping a budget is just going broke according to a schedule.

And it’s funny because it can be true. That’s the beauty of a budget. If you’re going broke, it will tell you by how much. If you’ve got $1,000 saved, and you put together your budget and find you are overspending by $200 a month, you’ll be out of money in five months. In this case, it really is a schedule for going broke.
Your budget will tell you the whole story. If you have financial problems, and you can’t figure out where you’re going wrong, your budget will show you. That’s because numbers will never lie. It’s just income minus expenses. We always advise our clients to keep a budget. That is our gospel, and we preach it loudly.
In reality, a budget is just a simple financial statement common to every single business that ever existed. It’s the same thing a business uses to compute its profit or loss in a month, quarter, year, etc. In business it’s called an income statement or a profit/loss statement. But it’s just income minus expenses. Granted, a person or a family’s income statement will be much simpler than that of a business, but it’s the same idea.
In fact, I advise my clients they think of their household finances from a business standpoint. I’m not telling them to view their family as a business, just to view their finances like a business owner would. The sales a business generates are its income. Just like your wages are your income. And all the expenses associated with operating a business amount to its cost of doing business. For a person or family, it’s the cost of living.  The same way a business needs to know where all of its money is going, a person needs to know too. That’s why if you don’t know the cause of your money problems, the budget will show you. The cause is found in the numbers. f
Income minus expenses. You can’t get much simpler than that. And numbers do not lie. I must repeat that line to my clients about twenty times a day.

If Wells Fargo doesn’t want my house, why are they moving so fast to take it?

In Uncategorized on January 27, 2013 at 8:15 pm
One Wells Fargo Center – Charlotte, North Caro...

One Wells Fargo Center – Charlotte, North Carolina, will succeed as Headquarters for East Coast Operations of Wells Fargo (Photo credit: Wikipedia)

Although borrower is approved for ample social security benefits, lender won’t hold off on foreclosing.

Today I had a client who wanted to bang his head against a wall. His name is Will, and he is three months behind on his mortgage. This poor guy had fallen ill this past year, went into the hospital and then was laid off. When his employer called to tell him not to come back to his job, Will filed for unemployment benefits. Being 63 years old, he decided to retire and so he also filed for social security. He was told by these different agencies that he would qualify for all three benefits. With his pension, the total income would be $3,900 per month. His house payment was only $750, and once those benefits kicked in, he would easily be able to resume making his mortgage payments.
But Will wasn’t paid while off work, and he fell behind on his mortgage. Wells Fargo had already sent him a notice of intent to foreclose.
The problem was that Will would not begin to receive the benefit money for at least a few months. But, Will did have the award letters verifying the amount of money he would be getting, and so he could prove what his income would be in the near future.
Now, I always hear spokespeople in the mortgage business say that lenders do not want to foreclose on anyone, and only do so as a last resort. So you would think that a mortgage lender would be willing to work with a person who can prove that their income will be going up to a level where they can afford to again pay their debt.
We called Wells Fargo to see if they would be reasonable. They wouldn’t.
We were told that even though Will could provide a copy of his awards letter, proving how much he would receive in income, Wells Fargo might decide at any time to begin foreclosure proceedings.
“Sir, the mortgage companies say repeatedly that they have far too many foreclosed properties and that they don’t want to take anybody’s home,” I said. “I hear and read that all the time. If that’s true, just give him time to start getting his money. If he doesn’t start making his payments then go ahead and do what you have to do. But he was told he’d be getting four grand a month, and he’ll be able to repay the missed payments. Why can’t you just hold off foreclosure for two months?”
“Sorry sir, but there’s nothing we can do unless he makes his payments,” he said, sounding like a robot.

A Shiny Plastic World

In Uncategorized on December 19, 2012 at 8:23 pm

It’s boring, but reading credit card agreements is imperative

We all know that the world of retail transactions has gone plastic. The percentage of purchases involving a debit or credit card increases yearly. Think of the recent American Express ad campaign with shots of cashiers mechanically swiping cards while a line of consumers snakes its way through the retail assembly line. Then one consumer pays with cash and the entire operation comes to violent halt, the music stops, and everybody stares down the guy with the cash that disrupted their shopping bliss.
With so many different credit cards so readily available, you can’t assume every card will carry normal terms. There can be lots of clauses and conditions in those long, dense credit card contracts. For example, some cards will charge you a fee if you don’t use the card a set number of times during a particular time period. Most card agreements contain terms that if violated trigger a jump in the interest rate.
Take it from me, if you’re getting a new credit card, read the entire agreentment, especially if you intend to carry a balance on the thing.
This is going to be an extreme example, but there was one caller I spoke to, Cheryl from Colorado who didn’t know that she was required to pay back the money she had borrowed by using her credit cards. This woman was under the impression that she did not have to pay back the balances on her credit cards in full.
“I thought the reason for the minimum payments is so your credit score doesn’t go down,” she said. “And the more you pay, the higher your credit score goes.”
“That’s not how it works,” I said. “They expect you to pay them all that money. I’ll explain it to you.”
“Oh,” she said, the sound of disappointed realization in her voice. “What about all the finance charges? I didn’t spend that money.”
“I’m afraid they want that money too,” I said.
It’s a shiny plastic world indeed.

The Security of Savings

In Uncategorized on December 4, 2012 at 9:00 pm
English: This is a chart outlining the histori...

English: This is a chart outlining the historical personal savings rates in United States as compiled by the US Department of Commerce, Bureau of Economic Analysis (Photo credit: Wikipedia)

A High Credit Score is Great, but Money is Better

  Very few of the people I speak to have much money in the bank, and the great majority of my clients tell me they have none. Of course a lot of the time it’s because so many of our clients don’t seek us out until after they’ve exhausted all their money trying to keep up with their debt after it becomes unmanageable. But, many of my clients say they haven’t had money in the bank for a long time. And some tell me they’ve never had any savings. Economists have been warning that Americans as a whole have in recent years come to save very little of their money. According to the Bureau of Economic Analysis, the national savings rate has dipped to as low as 1 percent of income in recent years. The savings rate hasn’t been that low so since the Great Depression.
  That’s where a lot of my clients’ problems come from. Not having any money when some unexpected cost comes up.
  That is the number one way to avoid money problems: Having some money. Saving money is difficult, no doubt about it, what with the sky high cost of living. But money in the bank is a necessity because of life’s unavoidable hiccups. And based on what I see at my job, one of the biggest causes of money problems is not having money saved in the bank to pay for those hiccups. I can’t repeat it enough to my clients, a little money in the bank will help keep the stress away. Because money is security. Just ask anyone who is rich. Keep it in a bank or keep it under a mattress, but always have a stash of money you can access for when life’s unavoidable hiccups occur. Otherwise you might step into a pool of debt just to end up drowning.

Can you spot a good deal when you see one?

In Uncategorized on November 18, 2012 at 5:30 pm

When it comes to borrowing money, there are good deals and there are bad deals, just like with any business transactions.

You have to be able to tell the difference between a good one and a bad one. A good borrowing agreement will save you money. A bad one could ruin you.
It’s just like if you went to the grocery store and saw a gallon of milk selling for $10. You could probably find a better deal than that, no? It’s especially important to get a good deal on a loan because the loan is going to be with you a lot longer than anything from the grocery store.
Barbara from Michigan bought a riding lawn mower at Home Depot. She financed the purchase with a payment plan that included a 90-day same-as-cash incentive, and she told me how no payments were required during those first 90 days, and so she wasn’t making any payments.
“I won’t have to start paying on that for a couple months,” she said with relief in her voice.
“What?” I cried. “Why aren’t you paying on it now?”
“Because there’s no payment required.”
Barbara had a good deal on her hands but she didn’t know it. Home Depot was giving her the riding mower she wanted without requiring any down payment. Nothing. She got to take home her riding mower without forking over a dime. And she had three months to pay for it in full without incurring any extra costs. That’s pretty good.
Instead, Barbara will incur finance charges of 10 percent when she finally begins paying on that mower. And here’s the kicker: The 10 percent interest charges will be retroactive to cover the first 90 days. She will end up paying far more than the $1,000 price on the mower’s tag. If she’d just saved up half that money, and paid the remaining $500 off over the three months they were giving her, she would have saved a bunch on the finance costs. And she would have avoided having another piddly little monthly payment to make for the next year or two.
“Barbara, you should pay as much as you can toward that balance before the interest charges kick in,” I told her. “If you can save money on the interest, do it. It’s the same lawn mower, whether you pay extra for interest or not.”
That’s why it’s important to understand how the business of borrowing and lending money works. There is nothing inherently bad about borrowing or having debt. Both are necessary sometimes and can be helpful. It’s the bad debt and the unnecessary debt you have to look out for. As I said, Barbara got a great deal. She was just squandering it.

Remember that:

In Uncategorized on November 11, 2012 at 10:09 pm

1) Your debt payments are your creditors’ income
and
2) The certainties of life: Death, Taxes and creditors coming after their income

Family Members each Facing Foreclosure, won’t even consider Living Together

In Uncategorized on October 6, 2012 at 7:06 pm
I got a friend named Tony. Tony is Italian. He’s also 30 years old and lives with his parents. Outside of the time he spent away at college, Tony has never lived on his own. This is even though he’s got a good career going, has a girlfriend and he makes decent money.
I thought about Tony’s situation when I read an article in the Wall Street Journal recently that talked about how people in Southern Europe tend to stay physically close to their families, and how it’s their families that they lean on when they have money problems. Those Southern European countries–namely Italy and Spain–don’t have much in the way of social programs for people who are down and out. And it’s like that either because families help each other, or families help each other because there are no social programs. Sort of a chicken-or-the-egg question. Either way, that’s how those cultures work.
Reading that story and thinking about Tony’s situation, I thought about all the clients I speak to who are facing foreclosure, and after talking to them for a while, come to find out they have a parent or family member in the same boat, facing a foreclosure of their own, and neither one knows what they’re going to do for a place to live.
In one recent case, a client who is being foreclosed on told me that her mother is also losing her own home, which is in the metro area as her. Both women live alone, and could no longer afford their homes.
I asked her, like I’ve asked my other clients in similar situations, “Have you considered your mother moving in with you, or you moving into her house?” The answer is always a flat out, No-way Jose.
In fact, usually when I bring it up, the client looks at me like I’m crazy for even suggesting it. Now I know there are a lot of scenarios where living with a particular person just would not work out. The resulting disaster might even end up being a headline in the newspaper. And I’m not saying everybody should live with their family long term like Tony, but if two related people are in such bad spots that they don’t know where they’re going to be laying their heads at night, it might make sense to at least consider doing so for a little while. Sharing living expenses is a much quicker way to get back on your feet after a job loss or some other major financial setback. And who knows, you might become closer to that person you live with.
As for my friend Tony, I asked him once why he still lives home even though he can easily afford his own place, and he’s a grown man.
“I’ll move out when I get married,” he said. “My parents don’t bother me, and there’s always food in the fridge. Besides, do you know how much money I’ve saved up?”
What can I say? The guy’s happy, and he’s always got money in his pocket.

Woman Refuses to Face her Own Personal Fiscal Cliff

In Uncategorized on September 3, 2012 at 8:24 pm
Some of the biggest financial predicaments come about because of poor planning. Or in many cases, because of absolutely no planning at all. Or as I like to call it, burying your head in the sand.
For example, I talk to many people who are in trouble because of a major change in their finances that they knew was coming but didn’t do anything to plan for it. You wouldn’t believe how many people risk losing everything they have, including their home, because of this exact scenario.
One of my clients, Liz, had her head buried so deep, she hadn’t seen daylight in a long time. What happened was Liz was receiving money from SSI for her daughter. She had gotten this money ever since her husband died five years earlier. She got $650 from SSI each month, but she knew that the money would stop coming when her daughter turned 18.
Well, Liz’s daughter turned 18, the money stopped coming in, and Liz found herself without enough income to afford her bills. She was behind on everything, including her mortgage.
Liz had even sold the few nice pieces of jewelry that her husband had given to her, including the diamond earrings that were a present for their 10th anniversary, as she tried to keep up with her expenses. But it was no use without that extra $650 coming in every month.
“What am I supposed to do now?” she cried.
The answer was to scramble frantically to make up the difference in the income she’d lost, which is exactly what she was doing. But there was no reason for the frantic scrambling. She knew for years exactly when that money would stop coming, yet Liz was completely dumbfounded when it did. It was like she had walked into her job one day and been handed a pink slip out of the blue. If she had accepted the fact that money would stop and planned for what to do, it might be a very different situation.
At this point, Liz would probably have to downsize, sell the house and rent an apartment. And maybe she’d have needed to do that anyway, but here’s the point: at least it would have been a nice smooth transition instead of the craziness and sleepless nights she was enduring.
And maybe she’d have been able to keep the jewelry her husband gave her.  

Trust Numbers to Guide your Financial Decisions

In Uncategorized on August 14, 2012 at 8:36 pm
One of the most important points I try to get my clients to understand is that numbers can be trusted. You may have heard the saying, “Numbers don’t lie.” It’s very true. I’m not talking about corporate earnings and government employment figures. Those numbers can lie through their teeth. I’m talking about the simple budget numbers that I put together with each client to show their financial situation. Those numbers, as long as they’re accurate, will be entirely truthful. And I try to get my clients to let those numbers guide them in their financial decisions.
Here’s an example: I spoke today to a man named Darrell who had racked up a bunch of credit card debt and was considering filing bankruptcy to be rid of it.
We put together Darrell’s budget and found that his truck was costing him $1,000 per month–$450 for the truck payment and another $550 for gas and insurance Meanwhile, the guy’s monthly income was only $2,000. Darrell had been living on credit cards because he didn’t have much money left after paying for his rent and his monster truck. He just didn’t realize it because he never looked at these numbers; he just went along charging everything until he reached the limits on his credit cards. Even if he got rid of the credit card debt through bankruptcy, he still wouldn’t be able to keep up with that truck because there wasn’t enough income. He couldn’t afford it, plain and simple.
“Darrell, half your salary is going to pay for that truck,” I said. “And that’s not including any maintenance for it. Filing bankruptcy isn’t going to let you afford the truck. You need to make another five or six hundred a month at least to afford it. If you don’t make more money, you’re going to keep having problems unless you get rid of it.”
Darrel explained how he really liked the truck, and didn’t want to give it up.
“Well, can you live in it?” I asked him.
He chuckled and replied, no he could not.
“Well, can you move back in with your parents?”
Darrell didn’t want to do that either.
And that’s another thing about numbers. Because they don’t lie, they show you the reality of your situation. Then  it’s up to an individual person to decide if they want to face that reality. But either way, the reality of those numbers will confront the person eventually.
Just ask the guys who were running Enron.