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The Harsh Reality of Car Title Loans

Legislators and consumer advocates have taken stands in recent years against payday loans, largely considered one of the most nefarious financial traps available to low-income consumers. But more recently, some worried analysts have taken up the torch of another type of absurdly high-cost loan: car title loans.

According to a recent post at CreditSlips, this type of loan can wreak serious financial havoc on consumers who can least afford to lose money. Here’s a look at some of the troubling numbers.

How Title Loans Work

Car title loans work like this:

• A borrower enters the lender’s storefront in need of cash.
• The lender originates a secured loan with the borrower’s vehicle as collateral. (According to sources, lenders will typically offer dollar amounts of no more than 40 percent of a vehicle’s value.)
• Interest rates on car title loans can reportedly top 300 percent, meaning that most borrowers end up paying far more than their car’s value in interest payments over the repayment period.
• If a borrower cannot afford to make payments, the lender has the legal right to repossess the vehicle used to secure the loan.
• Some lenders, it seems, also sell used cars (no doubt those repossessed from customers unable to pay).

The Hidden Dangers of Car Title Loans

As most people can see, the risk of losing your car to a car title lender is pretty high, especially given the astronomical interest rates charged and the typically limited financial means of most title loan borrowers.

But, according to a recent study, the actual cost to title loan borrowers seems to be higher than expected. Sources note that:

• At some auto title lenders, the repossession rate stands at 13.1 percent of loans - that means 1 in 8 people who go in for a loan end up getting their vehicle repossessed by the lender.
• The typical auto title borrowers will take out between 3 and five loans from a given title lender. This means that most borrowers apparently return more than once to take on high-interest, high-risk loans.

Know Your Options

While car title loans may seem like the only way out of a tight financial spot, it’s important to understand the high risks associated with them. If you’re struggling with serious debt (or know someone who is), consider seeking the help of a bankruptcy lawyer or credit counselor for guidance.

Posted in Bankruptcy and Predatory Lending, Consumer Protection, car title loans, consumer debt, payday loans | Comments Off

One Bandwagon to Hop on: Credit Card Spending Down

Consumer credit use has dropped since the beginning of the Great Recession, which seems like good news for a country plagued by excessive consumer debt (often in the unhealthy, revolving credit-card type), as a recent report from Credit.com notes.

Here’s a look at some potential causes of that dip and how you can resist the urge to spend, even if you’re surrounded by good-time plastic-swipers.

What Do Lowered Credit Card Debt Numbers Really Mean?

The easy assumption is that Americans are purchasing less on credit and/or paying down the debt they currently have. But, according to some insiders, that may account for only part of the decrease in credit card debt we’ve seen lately. Here are some other potential causes:

• Credit card issuer charge-offs: Credit card companies make a lot of money from fees and interest, but they also end up "charging off" a lot of debt each year. Of course, they can afford to do this because of all the other income they collect, but still. When a customer files for bankruptcy and has her credit card debt forgiven by the court, the company generally writes that off as lost revenue. Similarly, if a consumer simply cannot pay, the issuer may sell the debt to a collection agency and charge off that debt. These numbers may not show up in the report of how much credit card debt Americans are currently holding, so we may have racked up more than we actually have to pay off.
• Tightened lending standards: Another result of the credit crisis we’ve found ourselves in is that lending standards for ordinary Americans have gotten tighter than ever before. This means that, even if an ordinary consumer may want to take on more debt, he may not be able to because nobody will lend to him. While this reads on a numbers-only report like lowered consumer debt, it can be a bad thing if consumers need access to lines of credit to buy cars or homes.
• New credit card rules: Finally, some analysts have suggested that the new rules introduced by the Credit CARD Act have given consumers a better idea of what they’re getting themselves into when they sign up for credit cards, and thus acted as a preventative measure against excessive consumer debt.

Climb Aboard the Less-Debt Ship

So how can you take advantage of this trend to help improve your personal financial situation? Check out these tips on avoiding over-spending when you’re out with non-frugal buddies. Suggestions include:

• Stick with cash so you don’t get caught with other people’s meals or drinks on your card;
• Pretend you’re coming down with something to avoid being pressured into pricey drinks with dinner;
• Think up something big you can say you’re saving for to avoid endless purchases… and then really save; and more.

No matter what your reasons for improving your financial profile, these tips should help you get a head start.

Posted in Bankruptcy and the Economy, Consumer Credit, Credit Cards, Credit and Bankruptcy, Economy, consumer debt | Comments Off

A Look at Consumer Debt Where You Live

Though the U.S. economy is certainly not in top health just yet, a number of indicators suggest that we may be pulling out of this recession – but that may be a mixed blessing for many consumers.

Two recent reports (one from the Federal Reserve and one from CareOne Services) suggest that Americans have started spending more, which may be good for the economy overall, but could be a bad thing for individual debt loads.

Consumer Debt, State by State

The CareOne Services report examined 135,000 people across the country who were active in some sort of debt management program in 2009 or 2010 and found that, among that group, the average debt load was more than $10,000 in every state.

Here’s a look at the top of the heap for unsecured debt in the U.S.:

• Delaware: Average consumer debt is $20,233, spread over seven creditors.
• Rhode Island: Average consumer debt is $20,130, spread over seven creditors.
• Maine: Average consumer debt is $19,454, spread over six creditors.
• Alaska: Average consumer debt is $19,225, spread over six creditors.
• Colorado: Average consumer debt is $18,811, spread over six creditors.
• South Dakota: Average consumer debt is $18,707, spread over seven creditors.
• North Carolina: Average consumer debt is $18,536, spread over six creditors.
• Connecticut: Average consumer debt is $17,334, spread over six creditors.
• Wisconsin: Average consumer debt is $16,903, spread over five creditors.
• Alabama: Average consumer debt is $16,591, spread over seven creditors.

The ten states that had the lowest debt totals for those seeking debt settlement or debt management services are:

• California: Average consumer debt is $12,801, to five creditors.
• Michigan: Average consumer debt is $13,328, to five creditors.
• Mississippi: Average consumer debt is $13,512, to six creditors.
• Vermont: Average consumer debt is $13,707, to five creditors.
• Missouri: Average consumer debt is $13,737, to six creditors.
• Indiana: Average consumer debt is $13,945, to five creditors.
• Kentucky: Average consumer debt is $14,028, to six creditors.
• Iowa: Average consumer debt is $14,099, to five creditors.
• Virginia: Average consumer debt is $14,194, to five creditors.
• Tennessee: Average consumer debt is $14,222, to six creditors.

Increased Spending, Increased Debt, Increasing Need for Debt Relief?

During the holiday season, many economists seemed cheered by the increases in consumer spending, but personal finance advocates may find the same numbers troubling. The Fed’s report shows that our nation’s revolving debt (which basically means credit card debt) rose by 3.5 percent in December of last year.

Further, though our total amount of revolving debt apparently dropped in 2010, it dropped by a smaller amount than in 2009. This could mean that people are optimistic about the job market and the economy in general, but it could also mean they’re turning to their credit cards for necessities they can no longer afford thanks to rising prices or decreased income - and risk taking on more debt than they can handle and heading towards bankruptcy.

Posted in Bankruptcy and the Economy, Credit and Bankruptcy, Economy, consumer debt, recession | Comments Off

Keep Your Debt Elimination Motivation High

Whether you’ve committed to a Chapter 13 bankruptcy repayment plan or you're paying off debt without help from the bankruptcy court, it's essential that you stay with your plan over the long term – otherwise, you may never get to the payoff of being debt free.

But, because eliminating debt and rebuilding credit can take several years (a Chapter 13 bankruptcy takes three to five years), staying motivated to pay down your debt can be a challenge all its own.

Here are some tips for keeping yourself excited for your mission, adapted from NotMadeofMoney.com.

Stay Pumped to Pay Debt: Break the Whole into Sections

• Work piece by piece: Rather than thinking of your debt in terms of its overwhelming total number, break it into pieces of debt (whether by account, type of debt or some other groups) and focus on eliminating one type at a time. This should keep you from feeling helpless in the face of a large debt total.
• Take time to celebrate small victories: When you meet one of your small financial goals (which can be anything from paying off a certain debt to avoiding some type of costly, detrimental financial behavior) for a set time period, reward yourself and enjoy the reward. Obviously, it's important not to go overboard on this (and risk undoing all the good you've done), but treating yourself to, say, one fancy latte per month will likely help you enjoy that drink much more than if you gulp one every morning.
• Think debt by debt: Most insiders suggest paying the minimum balance on all but one debt (either the one with the highest interest rate, for maximum efficiency, or with the lowest balance, for speedy elimination) and funneling the rest of your spare change into that debt. This way, you'll pick off debts one by one as your work your way down to a debt-free life.
• Remember your long-term goal: Eliminating debt can provide you with financial freedom that you might use in a number of ways – remember to keep in mind what you plan to do once you're unyoked from your debts. Whether you want to travel, give more, work less or do something else, remember that your journey toward debt elimination will help you get there.
• Enlist a helper: Whether you're working toward financial freedom with a spouse or on your own, having an outside source of motivation can be helpful to keeping you on track. We tend to feel more responsible for our actions when someone is holding us accountable for them, for one thing; for another, it's nice to hear how well we're doing from someone else's mouth once in a while. So if you don't already have a debt-elimination buddy, start thinking about who might best motivate you to stay on track.

Posted in Financial Literacy, Personal Finance, consumer debt, debt | Comments Off

Know What to Look for in a Debt Settlement Company

If you’re struggling under what feels like a debt mountain, you’re probably ready to consider a variety of options to ease or eliminate your financial burden. And, if you don’t think bankruptcy is right for you (or if you’re ineligible for bankruptcy because of a recent filing), you may be wondering whether debt settlement could help.

While debt settlement does work for some people, it can be risky to sign on with a debt settlement firm – less-than-scrupulous companies abound and can cheat consumers out of money when they can least afford to lose it.

When Can You Trust a Debt Settlement Firm?

A recent article from WalletPop.com offers some tips for spotting a trustworthy debt settlement company. Here’s a summary.

• Do some background sleuthing: Before you even leave your house to visit a debt settlement firm, use the tools available to you to nose out a trustworthy company in your area. You may want to start with a simple internet search, but be sure to check any company you consider with the Better Business Bureau for its grade (although newer companies may not yet have any useful comments – good or bad – on that site yet). You should also look for consumer comments about the firm to see how others have responded to their services.
• Know what a “reasonable” fee is: If you choose a non-profit debt settlement company, the up-front consultation fee should be $75 or less, according to sources. If the company charges more than that, they’re likely more interested in taking your money than helping you settle your debt woes. And it’s important to note that laws prohibit for-profit firms from charging any up-front fee at all.
• Time your first meeting: Another way to gauge a debt settlement firm is to time your initial meeting with a representative. According to insiders, anything less than an hour should raise a red flag – in order to get a thorough sense of your finances, a representative should take at least 60 minutes to understand your debts and assess your situation. Another bad sign is if the person helping you is distracted or inattentive – your finances require the full attention of the customer service representative, and anything less should signal you to leave.
• Go with your gut: If the debt settlement company or its representative seems to be pushing you hard to sign on, suggests or says that the process of debt settlement will be easy, or acts like the answer to all your problems, you should assume that the situation may be less than ideal. Debt settlement, when it’s done honestly and well, still requires consumers to make financial sacrifices and stay on top of payments – it’s not an easy road out.

Above all, understand that you are the one who will be most affected by whatever happens to your finances, and so you need to take an active role in making sure your finances are on the right path. Use the online resources available to you and follow your instinct – any deal that seems too good to be true most likely is.

Posted in Consumer Protection, Financial Literacy, consumer debt, debt, scams | Comments Off

A Better Alternative to Payday Loans?

The financial dangers of taking on a payday loan (a short-term, high-interest loan offered to people with weak financial histories) generally outweigh any benefits. For cash-strapped Americans who need to make rent or utility payments, though, payday loans are often the only viable source of cash.

But, according to a post on WiseBread.com, that might change soon: it seems that, in some parts of the country, a more consumer friendly alternative to payday loans is cropping up.

More Affordable Small Loans

Here’s a look at what might soon act as a better option for people looking to borrow a little money for a short amount of time.

• FDIC pilot program: Between February 2008 and February 2010, the Federal Deposit Insurance Corporation tested a program that allowed Americans to borrow up to $2,500 for a period greater than 90 days. Interest rates were capped at 36 percent (but were often less).
• Non-payment loan requirements: In addition to making regular payments on their loans, borrowers were often required to meet other criteria, such as opening and putting money into a savings account, taking a financial literacy class and more. These measures were instituted to reduce or eliminate a borrower’s need for small dollar amount loans in the future.

According to the FDIC’s web site, the experiment showed promising results in many of the volunteer test banks (28 across the country). Now, the question many consumer advocates are asking is when will such programs be more widely available.

Finding Affordable Loans Near You

If you’re in need of a loan but don’t have the credit score or history to qualify for a traditional bank loan, you may be able to find a small dollar amount lender near you that won’t charge punishing interest rates. Here’s what to look for:

• Check out your local banks: Sources note that national banks like Bank of America and Wells Fargo have not yet hopped on the small loan bandwagon, but various regional banks across the country do offer a variety of small loans. To find out what your options are, call some local banks and ask about their non-traditional lending programs.
• Visit a credit union: If no banks in your area offer smaller loans, check out some of the credit unions. Because they’re structured on a more community-centric model, credit unions may have more alternatives for local members without other options.

It’s uncertain right now whether these programs will catch on (and even whether they’ll get some sort of national support to help them grow), but it seems that the FDIC’s chair, Sheila Blair, hopes they do.

To learn more about small dollar amount loans and how they might help you, visit the FDIC’s web site (link above) or check out the full WiseBread.com article.

Posted in Bankruptcy and Predatory Lending, Consumer Credit, Credit and Bankruptcy, consumer debt, predatory lending | Comments Off

When It’s Time to File for Bankruptcy: How to Know

Bankruptcy protection is often cited as a crucial part of the fabric of American capitalism – with the safety net of bankruptcy available, entrepreneurs and risk-takers can proceed without worrying that following their dreams will have devastating financial consequences.

Recognizing the important role bankruptcy plays in our economy, two bankruptcy analysts have developed a color-coded system to help consumers gauge their level of financial health and help them figure out whether they should be seriously considering a bankruptcy filing to protect their financial future.

Financial Warning Signs that You Might Need Bankruptcy

The various colors in this code, much like those in the code used by the feds to communicate the current level of threat of a terrorist attack, work like this:

• Green zone (no need to file bankruptcy): If you're in this category, you have no real need for bankruptcy protection. You probably make more than you spend, pay your bills on time, have assets and insurance, have no credit card debt and save money regularly.
• Blue zone (financial changes might be needed): Here, you don't quite need bankruptcy protection, but your financial habits, if continued, may lead you to a place where you will. People in this zone may be worried about losing their job, have trouble paying bills in full each month, have credit card debt and secured debt, and may not by able to save money regularly.
• Yellow zone (bankruptcy is an option): At this level, you need to evaluate your situation and consider your debt-relief options, bankruptcy being chief among them. People in the yellow zone are often experiencing some financially difficult life change (like divorce, injury or layoff), have begun to miss payments on both unsecured and secured debts, have few or no assets, are getting calls from debt collectors and may not have insurance. If you're in the yellow zone, you need to take some sort of action, whether that's negotiating with your creditors or consulting with a bankruptcy lawyer.
• Orange zone (bankruptcy should be seriously considered): Here, your debt is getting out of control. People in the orange zone tend to be delinquent (more than 60 days late) on at least one bill, use one credit card to pay off another, owe serious tax or medical debts but cannot afford them, have been out of work more than three months and may have had creditors initiate lawsuits against them. While there are still alternatives to bankruptcy available at this stage, it's generally a good idea to consult with a lawyer to see what the best option for your finances and legal status is.
• Red zone (file for bankruptcy right away): At this stage, you're no longer in a position to negotiate and need the protection of the court to prevent having your assets repossessed, your wages garnished, your home foreclosed or similar actions taken. Many people in this phase are unemployed and may have run out of unemployment benefits. Under these circumstances, filing for bankruptcy is often helpful because it may halt all collection action.

Posted in Bankruptcy, Credit and Bankruptcy, Filing Bankruptcy, Financial Literacy, consumer debt, debt | Comments Off

Study: We’re Using Our Credit Cards Less

A study conducted last year by the Javelin group reportedly found that, as a nation, we’re cutting back on our credit card usage. The study apparently found that, while 87 percent of consumers polled in 2007 said they’d used a credit card in the last month, only 56 percent answered yes in 2009.

And, according to sources, the researchers think that number will fall again in this year’s survey.

Potential Benefits of Lowered Credit Card Use

While the finding itself suggests that Americans are responding to the weak economy by shifting their primary payment techniques, the larger potential effects of our changing behavior are interesting as well.

• More attractive cards: One potential side effect of decreased use of credit cards would be that credit card issuers could start trying to lure customers back with more enticing card offers, which could include rewards programs, low interest rates, versatility or a number of other options. This is by no means a guarantee, but it’s something to watch out for it you’re in the market for a new credit card.
• Less personal debt: A move toward debit cards and prepaid cards could lead us to lower levels of personal debt. While this would have to be a broad and fairly long-term shift in order to significantly reduce debt, such a shift could even affect the number of personal bankruptcy filings.

Credit Cards and Bankruptcy: The Connections

It’s important to understand the connection between bankruptcy and credit cards in any examination of our nation’s credit habits, especially during a recession, when more Americans might be pushed to seek bankruptcy protection. Here’s a look at some key links:

• Credit card debt in bankruptcy: Many bankruptcy filers have significant credit card debt when they file their bankruptcy petition. And, because credit card debt is not very high-ranking among debt types in the eyes of the court, a significant portion of those who enter bankruptcy with such a burden find some or all of their debt discharged.
• Credit cards after bankruptcy: Because high credit card bills lead many bankruptcy filers to financial distress, some are skittish about applying for credit cards after they exit bankruptcy. But credit cards, when used well, can actually help strengthen your credit rating and thus help you “prove” to potential lenders that you’ve adopted healthy financial habits.

Is Your Credit Card Use Healthy or Risky?

If you’re worried about your credit card bills or if you’ve found yourself depending more and more on your credit card to make ends meet, you may be heading toward financial upset. And, in many cases, taking action sooner rather than later can make the process of financial reform much smoother.

To get an objective opinion about your overall debt levels, consider consulting with a bankruptcy attorney, who may be able to help you get on the path to healthy finances once and for all.

Posted in Credit Cards, Credit and Bankruptcy, consumer debt, trends | Comments Off

Seattle Earns Dubious Debtor Distinction

It turns out that Seattle leads the country in a category other than caffeine consumption. According to a survey cited in the Seattle Post-Intelligencer, among the 20 most populated metropolitan areas in the country, Seattle has the highest average amount of consumer debt.

The survey, conducted by the information services company Experian, found that the average Seattle consumer owes $26,646. This figure is almost $2,000 more than the national average debt per consumer of $24,775.

However, the news is not all bad for residents of the Emerald City. The survey also revealed that Seattle consumers have very few late payments and stay below their credit limits. These signs indicate that Seattle consumers are using their credit wisely and maintaining healthy credit scores, despite their high level of borrowing.

According to the survey, Seattle narrowly edged Dallas, which has an average consumer debt of $26,599. According to the Dallas Morning News, Dallas is tied with Miami for the lowest average credit score among its consumers, and the number of missed loan payments is higher than the national average.

Rounding out the top five American cities with high amounts of consumer debt were Denver, Atlanta, and Phoenix. Perhaps surprisingly, the two largest cities in the country finished near the bottom of the list. New York came in at number 17, while Los Angeles consumers had the lowest average debt of large American cities.

In conducting the survey, Experian took samples of consumer credit reports from each of the 20 metropolitan areas. The numbers include items such as credit cards and car loans, but do not take into account mortgage debt, which is often excluded from consumer debt surveys.

Lessons for Consumers

• Late payments are the single biggest factor in lowering credit scores. Dallas consumers’ rate of late payments was nearly 20 percent higher than the national average. This explains the city’s low credit ranking, and shows that making credit payments on time is crucial to maintaining a health credit score.
• A high level of debt is not an insurmountable obstacle. Seattle consumers owe the most money, but also tend to make their payments on time. By using credit responsibly, Seattle consumers have been able to maintain decent credit scores despite their high levels of spending.
• Living in a large city may be expensive, but doesn’t have to result in high amounts of debt or even bankruptcy. The presence of New York and Los Angeles at the bottom of the list suggest that it is possible to have high living expenses but maintain healthy credit.

Additional Resources

Click here to see the entire list of average consumer debt in the largest American cities.

Posted in Bankruptcy, Credit Score, Credit and Bankruptcy, consumer debt, debt | Comments Off

Late Credit Card Payments Dip in Third Quarter

According to an article from the Associated Press, fewer Americans were late on their credit card payments in the third quarter of this year than in the second quarter, signaling that consumers may be getting more responsible at managing their debt.

While the decrease isn’t staggering (1.10% of payments compared to 1.17%), the statistic itself is: this is apparently the first time in a decade that late payments have decreased between the second and third quarters.

The Bigger Picture

Here’s a look at how this decrease fits into the larger context of credit card payments and debt in the United States:

• Steady decline: The 6% drop comes after an 11% decline in late payments between the first and second quarters, suggesting that, as a nation, our debt management skills are improving.
• Trend follower: The highest late payment levels occurred in states where the housing bust was biggest (California: 1.33%; Arizona: 1.35%; Florida: 1.47%; and Nevada: 1.98%).
• Outstanding balance: Average amounts due have also declined from earlier quarters and last year: in Q3, the average was $5,612, down from $5,719 in Q2.
• Savings down: The third quarter also saw a slightly lower rate of savings among U.S. consumers, suggesting we’re putting money toward debt rather than in the bank.

So What Does It Mean?

While no definitive explanation can be offered for the drop in late payments, the trend may be affected by a variety of factors, including:

• Unemployment: Both those who have lost their jobs and those who are still working (but are perhaps more aware of the threat of layoffs) tend to cut back on discretionary spending and focus on paying down debt rather than accumulating new “stuff.”
• Tightened credit: Many credit card issuers have pulled way back on their offerings of consumer credit and have gotten stricter about raising interest rates for late and missed payments. This may “scare” consumers into taking their debt more seriously, or into paying down balances to have more wiggle room.
• The holidays: For many of us, a major shopping and/or traveling season is upon us. The dip in late payments could represent a sort of collective preparation for the financial stresses of the season.
• Increased caution: The drop could also point to a more cautious American consumer – one who’s a bit less cavalier about taking on masses of revolving debt.

Additional Resources

Putting Credit Card Debt on Notice (PDF)

How Credit Card Debt Ensnares Consumers (PDF)

Posted in Credit Cards, Credit and Bankruptcy, consumer debt, revolving debt, statistics | Comments Off