GUEST POST: Lose Control of Your Cash? Avoid a Lawsuit by Controlling Your Debt Situation

September 14, 2011

Almost daily, we get solicited by people wanting to write guest posts for us. Testament to our importance, we guess. 99% of those solicitations don’t make it past the “show-this-email-to-each-other-and-laugh” stage. But occasionally a competent one makes it through the obstacle course. This one is from the magnificently christened Odysseas Papadimitriou, CEO of Card Hub, a major site for credit card offers and personal finance education. Mr. Papadimitriou has written for Forbes.com, TheStreet.com, The Huffington Post, CNBC, and U.S. News & World Report, so we’re honored to have him on board.

This post is on how to minimize the damage if you incurred debt. Yes, we at Control Your Cash will forever maintain that not getting crushed by debt in the first place is the result of simple choices you made years earlier. But still, a pound of cure is better than a ton of wage garnishment and harassing phone calls.

Credit card companies and debt collectors can be awfully intimidating, especially when you owe them money. However, no matter how much you owe or how delinquent you are in paying it back you still have rights. Certain debt collection techniques are, in fact, illegal. And, depending on your situation, there are a number of resources and options available to you. So, what should you do when encumbered by significant debt? Let’s find out.

Establish a Dialogue
While your instinct may be to lie low and hide from your creditors, starting a dialogue with your credit card company can make all the difference. So, if you start missing payments or have already charged-off on your credit card debt, pick up the phone. And remember, a person is on the other end of the phone, a person who likely gets yelled at for a good portion of the day. Explain your situation calmly and work at finding a mutually beneficial solution to the problem. After all, credit card companies would rather avoid the hassle of debt collections, and you most certainly don’t want to get sued. Just make sure not to agree to anything—and I mean anything—that is not part of a long-term plan you can realistically afford.

Eliminate the Possibility of a Lawsuit
In general, there are two types of agreements indebted and delinquent consumers can reach with their creditors directly (i.e. not through a court) that will not only eliminate the possibility of a lawsuit, but also get them on the road to being debt free. They are:

• Debt Management – This involves your creditor lowering your monthly payments by giving you a break on finance charges and fees in return for you agreeing to a long-term payment plan.
• Debt Settlement – Creditors often agree to forgive some debt in return for a customer paying down the rest of the amount owed in one lump sum. If you are having trouble making minimum payments, however, paying down a significant portion of what you owe at one time likely isn’t feasible.

Consult an Attorney
Though bankruptcy carries with it a weighty social stigma, it can actually be the best move in certain situations. Many bankruptcy attorneys offer free consultations as well, so why not listen to what one has to say? In general, the bankruptcy options available to you are as follows:

• Chapter 7: Provides for the court-supervised liquidation of your assets, the value of which is used to pay off your debt obligations. Information about this type of bankruptcy will remain on your major credit reports for 10 years from the date you file.
• Chapter 13: Involves establishing a three-to-five year payment plan, which is based on expected future earnings. Discharged (completed) Chapter 13 bankruptcies stay on your credit reports for seven years from the date you filed for bankruptcy. Non-discharged Chapter 13 bankruptcies (i.e. payment plans that you fail to abide by) will remain for 10 years.

Statute of Limitations
If all else fails it’s time to wait and hope not to get sued. Each state has its own statute of limitations for written contracts, which applies to things like credit card and loan agreements, and any failure to abide by such an agreement is therefore only relevant for 3-15 years from the date of your last payment. In other words, you can’t get sued for money owed after a certain point. Actually pardon me, a suit can still be brought, but it will be thrown out as long as your debt is time-barred (i.e. older than your state’s statute) and you make this clear to the court.

If you are unable to reach an agreement with your creditor and bankruptcy isn’t a good fit, still trying to pay down what you owe might therefore be inadvisable, since it will only extend the window for a lawsuit and your creditor ultimately won’t be satisfied.

Still, this doesn’t mean creditors won’t try to trick you into paying. The following is a list of things to keep in mind while you wait so as not to fall victim to shady debt collection practices and/or open yourself up to a lawsuit:

• Depending on your state, signing any statements promising to pay your debt or even acknowledging that you owe money will also reset the statute of limitations clock
• Debt collectors are legally barred from threatening a lawsuit unless one is actually under consideration
• Debt collectors may not contact you after a written request that they not do so or if you’ve made it clear that you have an attorney
• Debt collectors are not allowed to misrepresent your debt to credit reporting agencies

Given the risk involved, waiting out the statute of limitations should only be done as a last resort, and hopefully things will not even get to this point in your case.

**This article is featured in the Carnival of Personal Finance: Where does the Money Go? Edition**

Filed Under: Consumer Debt, Credit Cards, Education Tagged With: , , , , , ,

If you can’t grasp this, you’ll never get rich.

September 7, 2011

Get a credit card for the wrong reasons, and this is what will happen to your kids.

We recently showcased the perspectives that rich people share and that the non-rich never think about. Again, we’re not saying that everyone who exhibits a certain set of characteristics will build wealth. We’re saying that everyone who doesn’t, won’t.

One difference that we’d mentioned between those with the capacity to build wealth and those with none is that the former focus on the upside, rather than the downside. If that sounds uselessly vague, let’s apply it to something real: credit cards.

Most of the ads you see for credit cards plug which features the hardest?

  • Low-interest balance transfers
  • Low-interest introductory rates.

To a rich person, those mean nothing. If you’re serious about building wealth, here’s what you care about when obtaining a credit card:

  • Rewards
  • Protection.

That’s it. Nothing else. (Well, maybe credit limit too, but how much they’ll let you charge is usually a function of your payment history with your particular issuer. There’s little you can do to increase your limits until you’ve been with said issuer for a while.)

This imbalance of priorities illustrates the difference between the rich and the dreamers as much as anything else does. Think about what you’re being sold with a ***6.99% APR*** (for 6-month introductory period) card. What exactly does that feature mean?

It’s a promise from the issuer that you won’t have to spend as much for your upcoming failure to pay your balance on time than you otherwise might have.

Same deal with the low balance transfer rate. We’ll say it until we wear out the relevant keys on the computer: examine each transaction from the other party’s perspective. Are they looking for something fair, or are they looking to profit off your hide?

What does a low balance transfer rate mean? Say you’ve got a Chase VISA card, and BB&T is throwing a low-balance-transfer MasterCard at you. The implicit message from BB&T is

“We’re so sure that you’ll be making interest payments to us for the next few years, if not the rest of your life, that we’re willing to put money on it. Here’s a few hundred now, in the form of us paying off part of the interest on your old card. We’ll gladly give you that money (or more precisely, give it to Chase on your behalf) because we know you’ll make it up to us. Over and over again.”

This is no different than a casino giving you a line of credit, and no less ethical. At Control Your Cash, we don’t fault the credit card companies for offering balance transfers. We fault you for accepting them. If Amy Winehouse hadn’t bought all the heroin, her dealer would have had to find some other profession.

So how does someone with a wealthy person’s mentality handle credit cards? First, by never carrying a balance, for reasons so obvious we’re not going to get into them here.

There’s more to it than that. Plenty of people never carry balances and aren’t necessarily rich. The wealthy person takes advantage of opportunities when they present themselves. Sure, that’s easier said than done. But while most opportunities take some effort to uncover, taking advantage of your credit card issuer is about as easy as it gets.

A wealthy person thinks, “I have expenses anyway, so I’d be nuts to pay cash for them when a credit card will let me

  • wait 30 and even 60 days before paying
  • build rewards that cash won’t.”

Time value of money. Spending $5 for something today is dumb when you can receive the same thing now and not have to spend the $5 until next month. That’s called not charging interest, and if every business did it we wouldn’t have an economy. There are perfectly legitimate reasons for paying interest, if you borrowed money that the lender explicitly demanded a return on (and that you’re putting to some economic use that will benefit you more than you’re benefiting the lender.) If you pay interest (e.g., on a credit card) just because you were financing household purchases or couldn’t mail your payment in on time, then you’re just an imbecile.

Discover got famous for offering 1% cash on every purchase. If you had to choose between a Discover card and a VISA that offered no cash back but gave you a “sweet” introductory rate, why on Earth would you choose the latter? Discover is giving you money. Furthermore, why would you pay cash if you could pay with Discover? Again, Discover is giving you money. (It needed repeating. And bolding.) The Federal Reserve doesn’t send you a $1 bill at the end of the month if you use a Ben Franklin to buy something with.

Non-cash rewards cards work splendidly too, as long as you don’t change your behavior to accommodate the card. (I don’t know if they make a Victoria’s Secret MasterCard, or a UFC VISA, but I’d have little incentive to use either one.)

Again, a rich person recognizes opportunity when it’s practically waving its junk in her face. I can benefit without having to do a blessed thing? Then yes, sign me up immediately.

Meanwhile, a loser’s quest is to minimize the damage (rather than trying to maximize the benefit.) The low-interest credit card is the rectangular plastic version of the low-tar cigarette. If you’re going to get financial cancer, why prolong its arrival?

**This article is featured in the Carnival of Personal Finance #326**

Filed Under: Bad Examples, Consumer Debt, Credit Cards, Making Smart Choices Tagged With: , ,

Public Enemy #1

June 20, 2011

 

Anthony and Mrs. Weiner during gayer times, apparently at the Mauritius Independence Day parade

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This is the problem with our economy, right here. Get ready for the one Anthony Weiner piece that has nothing to do with sex. Or sexting. Or sextuplets.

The man pictured above, as you probably know, is America’s newest ex-congressman. Some embarrassing details recently came out about him, each revelation more damning than the previous one, culminating in by far the most shameful one of all. From the London Daily Mail:

Anthony Weiner owes between $10,000 and $15,000 on his American Express card.

This man was entrusted with 1/435 of congressional spending decisions. Considering that the current year’s budget sits at $3.8 trillion, you could argue that Weiner was responsible for spending $8.8 billion of your money.

Read that again: a man with a 5-digit credit card bill was making financial decisions for you and me.

It gets better. Over each of the last three years he averaged more than $700 in parking tickets. Well, that’s how much he averaged in unpaid tickets. We’re not sure how many parking infractions he incurred and actually paid for. Weiner also committed fraud by placing the registration sticker for one of his cheaper cars on his more expensive SUV.

The story implies that Weiner owns at least 3 vehicles. While living in a two-person household. And carrying up to $15,000 in American Express debt. (Not sure if he has other cards.) As to why someone who lives in the most urbanized part of the country and doesn’t have kids is driving a Nissan Pathfinder (current models run about $30,000), you’ll have to ask private citizen Weiner.

Maybe he paid cash for all the cars, and isn’t carrying any monthly payments. And maybe he and his wife have a healthy marriage, too.

And – we’re so not done yet – that part about not having kids? Weiner recently announced that he and his wife of a year are expecting a child. A fortuitous announcement, made a couple of weeks ago, because the pregnancy status of congressmen’s wives is routinely of interest to the nation. Good for the Weiners, though: when you’ve got a large liability on your books, one that’s costing you probably 19% interest, that’s the time you want to create another mouth to feed. (Never mind that Weiner will be in his mid-60s when the kid graduates high school.)

Look at the details of his expenditures. See those monthly processing fees? Weiner was paying for the privilege of spending his own money – money he collected as a servant of the United States taxpayer.

If you’re on the fence about leaving a comment on today’s post, leave one in response to the following question: What would be the harm in requiring candidates for Congress to carry zero credit card debt? Or at least in requiring them not to be paying processing fees, which are among the most idiotic and unnecessary expenditures a person can incur? Such a requirement would never become law, because the mice are in charge of the cheese, but still.

A man in his mid-40s, with zero dependents (his wife has a full-time job), and a (useless, political science) degree from a state college, making a six-digit salary, and this is what his personal finances look like.

That Weiner’s inability – no, refusal – to build wealth and take responsibility for his finances barely warranted a mention during his recent story arc in the news is yet another symptom of a fatal disease. His negative cash flow isn’t even remarkable by congressional standards. And again, every sentence in this post could be followed by the following: he’s partially responsible for authorizing federal expenditures.

If you’re nonchalant about your credit card bills to the point where you’re incurring processing fees every single month, many of them in the high triple-digits, while incurring parking tickets regularly and buying more cars than you can possibly drive, why on earth would you bother being judicious when spending other people’s money?

Weiner represented less than ¼% of the problem, too. His ilk remain and continue to spend taxpayer money at uncontrollable (and uncontrollably accelerating) rates. It bears repeating that every dollar confiscated from taxpayers doesn’t only carry the potential to be wasted, but reduces the taxpayers’ own autonomy proportionally. That’s one fewer dollar that could have been invested back in the economy as its original owner saw fit. Meanwhile, the congressman who carries no credit card debt, earns money by providing a legitimate service in the private sector, doesn’t draw a pension on principle, and refuses to let his kids put taxpayers on the hook by financing their educations via student loans, is beyond rare.

Weiner can find money when there’s a sufficiently important purpose in the balance, however. He had somehow managed to scrounge up $3 million for a run at a forthcoming New York mayoral race. The people get the government they deserve, indeed.

**This article is featured in the Carnival of Personal Finance #315: Bring on the Long Weekends**

 

Filed Under: Bad Examples, Consumer Debt, Credit Cards, Making Smart Choices, Personal Finance Tagged With: , , ,
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