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Archive for May, 2008

State Lawmakers Cracking Down On Payday Loans

Written by Toi Williams on May 31st, 2008 | Filed under: payday loans

Over the last year, many state governments have decided that they have had enough of the predatory practices of the payday lenders taking advantage of the people in their states.  Laws have been passed in some states capping the interest rate that the companies are allowed to charge or banning the practice as a flawed business model altogether.  Although lobbyists and supporters of the industry are predicting that dire problems will face lower income individuals in the states where laws regulating the payday loan industry have taken effect, many law makers believe that they are doing what is best for their constituents by protecting them from the predatory practices of the industry.

The Problem With Payday Lenders

At the heart of the issue is the business model that payday lenders use to make money in the industry.  The loans that they extend to consumers must be paid back within a two week period, which is often not long enough for the person to earn the additional money needed to pay back the entire loan, resulting in a cycle of borrowing new loans to pay off the old loans.  Experts estimate that the majority of the individuals that take out a payday loan get trapped within this cycle of debt, taking out an average of 12 loans throughout the year and paying the payday lender hundreds of dollars in interest for the loan.

Another issue at the heart of the problem is the interest rate that the payday lenders are charging to consumers for taking out the loan.  The payday lenders argue that their loans come with terms of $15 for each $100 taken out as a loan, which is not an excessive amount by their calculations.  When calculated as an APR, which is currently the only legal way to represent an interest rate applied to a loan, the lenders are charging their consumers 391% interest on the loan, an amount that lawmakers say is exorbitant and wildly unfair to consumers.

The States’ Solutions

Many states are attempting to find a solution to the issues that are occurring within their jurisdictions in regard to the payday lending industry.  The first regulations of the industry were actually issued by the federal government, when Congress capped the interest rate that payday lenders were allowed to charge military service personnel at 36% after seeing how many of America’s service members were falling into the trap set by payday lenders in stores often located just outside of military bases.  In response to the new law, the payday lending industry stopping making their short term loans to service members altogether and closed many of their stores near military bases.

State governments took notice and began to pass their own laws limiting the reach of payday lenders in their state. 
   Washington, DC and North Carolina banned payday lending within state borders altogether.
   Georgia made payday lending a violation of anti-racketeering laws, meaning payday lenders could be prosecuted for doing business in the state.
   Oregon, Ohio, and New Hampshire capped payday loan interest rates at 36%, with only Oregon allowing the industry to charge an additional $10 fee per loan.
   Arkansas capped the interest rate that payday lenders were allowed to charge each loan at 17% and the state attorney general announced that the law would be strictly enforced.

More than a dozen states have passed laws limiting the practices of payday lenders within their borders.  It will be interesting to see how many other states will follow suit.


Debt Tracking: Take Control Of Your Finances

Written by Toi Williams on May 29th, 2008 | Filed under: mindset, saving

One of the easiest ways for a person to take control of their finances is tracking their spending and their debt.  Many individuals do not know where their money is going each month because they have not kept track of the things that they are paying for and are often surprised to see the amount of money they have been wasting on frivolous objects once they do begin to track what they are spending their money on.  Before any financial process can be put into place to manage your finances, you must track your spending to find out where your money is going.

How To Begin

The first step in taking control of your finances is to begin to track all of the things that you are spending your money on each month.  This includes not only your bills and other major payments made on a monthly basis, but also all of the little things that you may spend money on, such as specialty coffees, weekday lunches, and movie tickets.  Although these items may seem like minimal purchases that would not do much to your bottom line, you would be amazed at how much these tiny luxuries cost over the course of a year.

For a period of at least one month, you should track everything that you are spending money on, from bills to groceries to snacks out of the vending machine.  The easiest way to do this is to keep a pen and a small notepad in your pocket or purse that can be pulled out and updated each time you spend cash or place an item on your credit or debit card.  Tracking everything that you spend money on during this time period can help you recognize trends in your spending habits and areas where your spending can be cut.

The Result

Once you have tracked your spending for a period of time long enough to get a good picture of your spending practices, it is time to find the areas where your spending can be cut to keep more money in your pocket and make a budget that will allow you to save more by spending less.  In most cases, the individual will find multiple areas where they can save money by switching one item for another, such as brewing coffee at home instead of purchasing it from a retailer or bringing lunch from home instead of eating out during the work week.  The money saved from these simple changes can be added to the money going towards your bills or placed into a savings account for a rainy day.

Getting out of debt might seem impossible if you’re dealing with it on your own. Get in touch with experts in debt help and get advice on various debt solutions available such as an IVA, debt management or bankruptcy.


The First Thing’s First: Prioritize Your Debts

Written by admin on May 27th, 2008 | Filed under: Uncategorized

Many Americans have the problem of having a taste for steak but only the budget to afford McDonalds. People tend to want more than they afford. Instead of accepting that there are things we can’t afford in this world, instead people borrow and borrow so that they can get what they want. This will work for a while, but eventually the debts will pile up and the situation will become unsustainable. People find themselves unable to pay all of their bills and start missing payments. When this happens, many people get late on their homes but are caught up on their credit cards! If you ever find yourself in a similar situation, make sure that your debts are being paid in the order that they should be.

The default rates for home equity loans and mortgages are increasing, but we’re actually defaulting less on credit cards. Credit card collectors are aggressive, intimidating, and harassing, and if you’ve ever had to deal with one, chances are you just want them out of your life. Many people pay their credit card bills first so that they don’t have to deal with that harassing individual anymore. They know they really can’t do much to you if you don’t pay your credit card bills, so they have to use psychological tactics to get you to pay.

We have a tendency to pay whatever company is screaming the loudest and making the biggest fuss about not paying their bill. This is entirely the wrong way to do it. You have to prioritize your debts. After you buy some food, put some gas in the car and pay basic utilities, the very first thing you should pay is your mortgage, because if you don’t take it, eventually the bank will take your house away. The second thing bill should pay is your car, because that will get repossessed if you don’t pay the bill and then you won’t have any form of transportation. After paying those two things you can then consider working on some of your other debts, such as credit cards and installment loans.

Credit card companies will kick and scream and harass you likely day and night, but that doesn’t mean they should be the number one priority. If it gets too much, just unplug your phone for a while or switch to an unlisted number. You should certainly pay all of your bills when you can afford to do so, but you should make sure that the first thing is first and take care of your most important debts before looking at paying unsecured credit card debt.

What is an IVA? It is a less severe debt solution than bankruptcy for people in serious debt. Learn more from experts in debt management.


Carnival of Personal Finance #154 Live

Written by admin on May 27th, 2008 | Filed under: blog carnivals

The Carnival of Personal Finance #154 is  hosted at Canadian Dream – Free at 45

There are a ton of blog posts included this week, and many of them will help you reduce your debt and manage your money better, so be sure to head over to “Canada” and check them out.  Here are a few to get you started: 

American Consumer News explains Automatic 401k Plans.

Accumulating Money tells us What to do before age 30 to set you on a firm financial path.  I am running out of time, only 2 years left to conquer this list!

Debbie from DestroyDebt.com, about Managing Your Money with a Preparation Account. 

Mighty Bargain Hunter warns us that $12-$15 per gallon of gas is coming… Pay $15 for Gas Now to prepare for it.  Can you even imagine that?  No- but ten years ago, could you imagine paying $4.09 for a gallon of gas?

Thanks to the Carnival host for including Discover Debt Freedom and our 5 Financial Rules to live by.

See them all by visiting The Carnival of Personal Finance #154.


Do You Know Your Debt Collection Rights?

Written by Toi Williams on May 25th, 2008 | Filed under: collections, collectors, Uncategorized

There are many people across the nation that are deeply in debt and many of these individuals have had to deal with a debt collection agency at some point in the last several years.  The debt collection industry has repeated come under fire in recent years for aggressive debt collection practices and many individuals are aware that they can report aggressive collection agents and agencies to the Better Business Bureau to document the harassing actions.  What many individuals do not know is that the Federal Trade Commission of the United States Government has passed a Fair Debt Collection Practices Act that specifically details the rights of the individuals being contacted by the debt collection agency and lists the actions that debt collectors are not allowed to take.

1.  You Can Stop The Collector From Contacting You
Many individuals being contacted repeatedly by aggressive debt collection agents do not know that they can legally have the harassing phone calls stopped by submitting a request in writing that the collection agency stop contacting them.  Once the request has been received by the debt collection agency, they cannot contact you for any reason other than to tell you that your letter has been received and they will no longer contact you.  Stopping the collection agency from contacting you does not erase the debt that is owed and the collection agency may decide to sue you in court to recoup the funds that they are owed.

2.  Collection Agencies Are Not Allowed To Contact Debtors After 9pm Or Before 8am.
The hours in which the debt collection agency is allowed to contact you are explicitly spelled out in the Fair Debt Collection Practices Act.  Debt collection agencies must adhere to these time constraints unless they receive permission from you to contact you outside of these times.

3.  Debt Collectors Must Send You A Written Notice Describing The Debt.
If a debt collection agent contacts you to tell you that you owe money to the company, within five days of the initial contact, the debt collector must send a written notice describing the debt, listing the amount owed, and disclosing the steps that can be taken by the debtor if they believe that they do not owe the debt. 

4.  Many Aggressive Debt Collection Practices Are Prohibited.
Debt collection agencies and their agents are expressly prohibited from the following:
– Using obscene or profane language when talking to the debtor
– Threatening violence or harm
– Misrepresent who they are by claiming to be an attorney, from the credit bureau, etc.
– State that you will be arrested for not paying the debt
– Collect any amount greater than the debt owed
– Misrepresenting documents sent to you as legal documents when they are not
– Publish the names of individuals that they are attempting to collect a debt from

5. Debt Collectors Cannot Repeatedly Contact You At Work If Your Manager Disapproves.
The actions of the debt collection agency are not allowed to interfere with your employment and this includes calling you at work when your boss disapproves of the contact.  If collection agency repeatedly contacts you at work knowing that it could affect your employment, they could face sanctions from the Federal Trade Commission.

A more complete list and description of debtor’s rights are listed in the Fair Debt Collection Practices Act released by the Federal Trade Commission.  If a consumer has experienced any of the prohibited or harassing tactics listed in the Fair Debt Collection Practices Act, they may report the debt collection agency to the Federal Trade Commission or to the Attorney General of their state for investigation.


Refinancing A Home: What If I Have Bad Credit?

Written by Toi Williams on May 24th, 2008 | Filed under: credit score

As the credit markets tighten, it is becoming more and more difficult for individuals to obtain loans and refinance their homes.  This is most apparent with individuals with marginal to poor credit scores or blemished credit histories.  But it is possible for an individual that has bad credit to be able to home refinance.

What Creditors See

The most important part of an individual’s credit history to a creditor is the individual’s credit score.  In many cases, the individual’s credit score will tell the creditor all that they need to know about a person’s credit history and base the interest rate that they offer on the individual’s credit score.  If the person’s credit score is low, then the creditor will determine that the person is a credit risk with a higher probability of defaulting on home loans

The good news for the person with the bad credit that wants to mortgage refinance is that a low credit score may not disqualify them from being offered a loan to refinance the home.  The creditor may merely decide to raise the interest rate for the loan in order to hedge their bets against the person defaulting on the loan.  The higher interest rate may add thousands of dollars to the loan over the life of the loan, but for some individuals that took out an adjustable rate mortgage to purchase their home, the higher interest rate may be the better option against the rate resets that will occur in the future with their current loan.

So What Are The Options?

A person with bad credit or a low credit score will generally have three options when it comes to refinancing their loan.  The first option is to choose to refinance the home at the higher interest rate, if they are approved by the lender.  This option will cost the homeowner more money than if they were able to obtain a more traditional interest rate, but depending on the reason for the refinance, the higher interest rate may be the better option.

The second option for the individual is to try to shop around for a better interest rate for the loan.  This can be dangerous because most lenders look at the same information about a person’s credit history and will offer the person the same interest rates across the industry.  If the homeowner finds a lender that is willing to offer an interest rate that seems too good to be true, chances are the lender is not a reputable one and taking out that loan may be more trouble than it is worth.

The last option is for the person to stick with the loan that they currently have and attempt to raise their interest rate over the next several years.  Individuals with adjustable rate mortgages that are about to reset may not be able to afford to wait long enough to raise their credit scores and raising the credit score enough to make a difference with lenders may take several years to accomplish as it is much easier to lower a credit score than it is to raise it.


Prosper and Zopa: Looking into the World of Online Consumer-to-Consumer Lending

Written by admin on May 23rd, 2008 | Filed under: Uncategorized

When most people are short on cash and need a few hundred to a few thousand dollars, they walk down to the local bank and try to persuade the loan officer to give them a loan. If the consumer doesn’t meet the bank’s cookie-cutter standards for who can get a loan, they’re rejected and the person’s just out of luck. Those who do get loans are often stuck with unfavorable terms and the only person that wins in the situation is the bank. Now two companies are hoping to empower consumers by offering services which will allow consumers to provide loans to each other online.

When a borrower wants to receive a loan, they will head on over to the Prosper or Zopa website and register for an account. The companies will check the credit of the person wanting to borrow the money and make that information available to any potential lenders that would be interested. The borrower will post how much money they need and an explanation of their story and why the need the loan. Lenders will be able to look at the individual’s story and credit score and then be able to loan some or all of the money that the person needs to borrow.

Prosper and Zopa are two businesses which provide such a peer to peer lending service. Prosper is a United States firm that launched in February of 2006 and is based out of San Francisco, California. Zopa is a British firm that originally only offered the service in the United Kingdom, but is preparing to launch its service in the United States as well.

There are a few differences between Prosper and Zopa. With Prosper individuals with any credit rating can apply to borrow money, even those with over 100% debt to income ratios. Zopa has tougher lending standards than Prosper and only allows individuals with moderate to good credit to borrow money. The fees at Zopa are also a bit lower than that of Prosper. Prosper will charge you a 1% or 2% origination fee when you borrow money, and charge lenders a .5% or 1% annual service fee on each of the loans that they have. With Zopa, borrowers and lenders each pay a one-time 0.5% origination fee. Zopa is certainly a much better deal when for lenders than Propser.

Online lending sites such as Prosper and Zopa are a win-win situation for both borrowers and lenders. The lenders who are investing their money make a much better rate of return than if they would throw their money into a savings account or bond fund, and borrowers can receive a better interest rate than they would at banks because the lenders don’t have all the overhead of branches and employees.


Collection Triggers: An Invasion Of Privacy?

Written by Toi Williams on May 22nd, 2008 | Filed under: collections, collectors

One of the newest and more questionable practices used by collection agencies today are the use of Collection Triggers to attempt to collect on the debts that they hold.  Never heard of Collection Triggers?  Well, neither have the other thousands of individuals whose personal information is being sold by the credit reporting bureaus to collection agencies across the nation.

What Is “Collection Triggers”?

Sold under the name Collections Triggers by leading credit reporting agency Experian, this software program is designed to take the information about a collection agency’s list of collection accounts and monitor those accounts in Experian’s system for any activity on the account.  Once activity on the account has been detected, the collection agency is notified and any new contact information given to the credit reporting agency is then given to the collections agency.

This allows the collection agency to find you every time something is reported on your credit report as they now have your address, phone number, and the fact that you are paying an account or have opened a new account recently.  Regardless of whether the collection account that the agency has on you is valid or not, for as long as they wish they can access your personal information and can harass you for accounts that you may or may not owe.

Other Issues Arising

“So what?” you may say, “I don’t owe any creditors any money so this does not apply to me.”  Well, you couldn’t be more wrong.  The technology used to create Collection Triggers is already being modified to be applied to other industries. 

For example, if an individual begins the procedure to obtain a mortgage and their credit is pulled to determine whether or not they can afford the mortgage, the credit reporting agency is alerted that you are shopping for a mortgage.  The credit reporting agency then sells your information to competitors of the mortgage company you applied with so that they know that a potential customer is looking for a mortgage.  The result is that the consumer is swamped with phone calls, solicitations, and mailings that offer alternates to the mortgage company that they initially chose.

For some individuals, this competition would be welcome but many others are alarmed that their personal information would be sold to companies without their consent.  There are no conditions put into place to ensure that only reputable companies are able to obtain consumers personal information and the threat of identity theft or being signed up for programs that you did not agree to is high. 

When a company misuses a consumer’s information, which can cost the consumer a great deal of money, the burden of proving that the information was misused is on the consumer.  Even if the consumer wins their case, they still may be on the hook for hundred of dollars in charges, have negative information reported on their credit report, and there is no guarantee that the issue will not occur again if their information is sold to another company.  There is currently no way for a consumer to opt out of the system and in reality, your information has probably already been sold to any company that was willing to pay for it.


Getting a Credit Card in College: Does it Make Sense?

Written by admin on May 21st, 2008 | Filed under: Uncategorized

There was recently a story featured on the Dave Ramsey show about a young college junior who was generally a good student, but got himself in $15,000 worth of credit card debt. The growing pile of debt gave the student a great amount of anxiety. He then began to take anxiety medication to help him get through the day. Eventually he checked himself into a hospital and was pending evaluation before being put in the psych word! Fortunately, a few of his friends called his parents and his parents brought him home from college to get the help he needs. This is of course, a rather extreme example of what can happen when students get college cards, but these types of situations do happen on occasion. Should college students get a credit card to improve their credit? Absolutely not.

Many financial gurus will disagree with this opinion, primarily because they are speaking from a theoretical standpoint. They will argue that you should get a credit card, put a few charges on it now and then and pay it off on a monthly basis. That will build your credit score and put you well on your way to becoming financially successful. That sounds all well and good in theory, but that’s not what happens in real life.

Many students are harassed on campus by credit card companies that pay the college to be there on a weekly basis. Some college students are offered free t-shirt, hat, or meal at Pizza Hut if they sign up for a credit card, and many of them happily fill out the form thinking that they can get a free meal and just cancel the card later, or they might just sign up because they’ve fallen for the myth that you need to build your credit score.

After the t-shirt is in the closet and the meal is gone, the credit card is still there. Along with the credit card comes the temptation to use it, and many college students who have credit cards were never taught how to use them responsible. They casually make charges for meals here and there and stuff they need to get on with life, and eventually the charges start to pile up.
There’s no way the vast majority of college students should qualify for credit cards. Most of them have no ability to pay back any debt because they don’t have jobs, and if they do, it’s likely working 10 hours a week at $7.00 an hour at some work-study position. That’s still next to nothing in terms of income. Credit card companies know that parents almost always bail out their children out of their credit card debt while in college, so they provide the cards to them anyway.

If you’re pretty good with money and get yourself a credit card in college and pay it off on a monthly basis, you’ll come out just fine from college. The problem is that most students don’t do that. They don’t use their credit cards responsibly, and instead get themselves into a pile of debt on top of the student loans that they already have. It’s just not a winning game plan to hand young people with next to nothing in financial knowledge and very low incomes a piece of plastic that will enable themselves to get into tens of thousands of dollars of debt!


5 Financial Rules To Live By

Written by Toi Williams on May 20th, 2008 | Filed under: mindset

It is remarkable how many people across the nation fail to follow even the most basic financial rules.  Basic financial rules should be taught to children prior to them graduating from high school and having to manage their own finances, but a refresher course in basic financial responsibility is good for everyone.  By consistently following these 5 financial rules, you will be able to keep yourself from falling deeply into debt and will save a great deal of money over time.

Rule #1 – Pay Yourself First
Before paying bills or spending money on items that you have determined that you need, place a portion of your paycheck into a savings account.  This can even be accomplished before you have your paycheck in hand, as many businesses allow individuals to direct deposit a portion of the check into the savings account automatically.  Everyone should have some savings in the bank to handle unexpected financial situations and emergencies.

Rule #2 – Pay All Of Your Bills On Time
Paying your bills on time can save you more money than you can imagine.  Not only will paying your bills on time avoid the accumulation of late fees and other direct penalties, it will also avoid a decrease in your credit score, which could lead to higher interest rates and the denial of credit in the future.

Rule #3 – Spend Less Than You Earn
Even though this may seem like common sense, you would be amazing at the number of people that routinely spend more money than they make each month, depending on credit cards and payday loans to bridge the gap.  Any person that spends more money than they make will always find themselves in debt to creditors, often for higher amounts because of the interest levied against each purchase.

Rule #4 – Save For Purchases
If you truly would like to remain debt free, save up for the expensive purchases.  Most of these items do not have to be purchased right away and the purchase will seem all the more worthwhile because you patiently waited and sacrificed to save money to purchase the item.  Before banks made credit widely available, this was how nearly all purchases were made.

Rule #5 – Resist Temptation
Many of the purchases that people make are unnecessary items that often are not used, worn, or shown as often as the person first thought it would be.  When faced with a good price on an item that catches your eye, take the time to stop and think whether or not you can afford to purchase the item and if the purchase is really necessary.  Chances are, you will find that it is better to leave the item on the shelf.

A great way to get a lower mortgage is to buy a less expensive home. Even in a seller’s market you can still get a good deal on a prefabricated home. There are hundreds of different styles and sizes of manufactured homes to choose from if you know where to look!