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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

Avoid Refund Anticipation Loans this Tax Season!

If you’re counting on a tax refund this year, you may have heard of refund anticipation loans (or RALs), which some tax-preparation services offer to people as part of tax preparation services. But these loans, as most consumer advocates will agree, are not a good deal for you the consumer.

Here’s a look at why tax refund anticipation loans (sometimes called a refund anticipation check) may not be all that they're promised, and what the federal government is doing to help you avoid them.

Why RALs Are a Bad Financial Move

So what is a refund anticipation loan? Basically:

• It’s a cash advance loan that charges you a high interest rate to get some of your tax return dollars earlier than you would have otherwise gotten them.
• Some tax preparation services offer them to customers who are expecting a tax return that year. Generally, a customer can receive the money for a “fee” of some kind – just like a payday loan. In fact, RALs are very much akin to payday loans: their “fees” are just high interest rates disguised to look harmless.
• RALs eat into whatever tax return you can expect to get. After all, you have to pay for the privilege of receiving your money early, and that money comes out of whatever you would have received from the federal government.
• RALs can also set you up for debt. What happens if there’s a mistake in your tax forms or if you end up getting a smaller return than you expected? If you take out a refund anticipation loan for the full amount of your return and then receive a smaller actual return from the government, you’ll still be responsible fore repaying the loan amount in full. Yikes.
• RALs may present a tempting prospect to unbanked Americans – after all, if you don’t have a bank account, waiting for a refund check from the government and then paying to have it cashed can seem like a waste of time and money. But paying for the RAL itself will almost always cost more.

So What Are the Feds Doing about the RAL Problem?

This year, the Treasury is launching a new program that offers an alternative to refund anticipation loans, particularly aimed at people without bank accounts who might be susceptible to the RAL’s siren song. Here are the gist:

• Debit card distribution: The Treasury will be sending debit cards pre-loaded with people’s refunds to 600,000 Americans selected at random to participate.
• Experiment to see what works: If the program proves popular, the pre-loaded debit card system could become standard practice in future years.
• Varied terms on cards: In order to test various features, the debit cards will come with a variety of features. Some will require no fees to make purchases or withdraw money from ATMs, while others will charge small fees to be activated, check balances or use at certain retailers.

The goal of this program, it seems, is to offer a lower-cost alternative to RALs and RACs to the people most likely to be tempted to choose them.

Posted in Bankruptcy and Predatory Lending, Economy, Financial Literacy, predatory lending, saving money | Comments Off

Protect Your Money & Car with Auto Warranty Tips

The Federal Trade Commission recently published tips to help Americans get the most out of their vehicle warranties. The guidelines are fairly simple, but could make a huge difference to your car (and your wallet) should your car need repairs.

And for anyone recovering from bankruptcy or otherwise trying to maintain healthy finances and eliminate debt, these tips should be welcome.

Know What the Warranty Protects

Here’s something that many consumers don’t know about auto warranties:

• Federal law protects consumers: In fact, it’s illegal for an auto dealer to deny service outlined in a warranty simply because a you had your car serviced by an independent mechanic.
• The dealer has to offer proof: In order to deny warranty-covered services, a dealer must be able to prove that specific work done on the car caused the damage that you want repaired. And then, only the part damaged by the independent mechanic can be denied warranty services – the rest of the car is still protected.

Make the Most of Your Car’s Warranty

The FTC recommends taking the following steps to make sure your car can get the service and attention it needs and is legally granted by its warranty.

• Read your warranty or your car’s owner’s manual: In order to take advantage of the terms of service, you have to know what they are, right? So make sure to take the time to look over what is guaranteed in your vehicle – you may even be pleasantly surprised.
• Keep a note of the end of the warranty period: It’s not “cheating” to have any problems or issues looked at by your dealer right before the end of your warranty. In fact, that’s a smart move: why not get any updates or repairs done for free while you still can?
• Take regular care of your car: Make sure to follow the guidelines listed in the owner’s manual for maintaining your car. This means changing the oil and air filters, having tires rotated, and getting any strange noises checked out as they occur. This may cost more in the short term than ignoring your car or letting things slide, but better maintenance will mean better longevity (which means you won’t have to pay for a whole new car for longer).
• Keep your receipts: It’s a good idea to have a file (whether digital or hard) of all the maintenance and repair work you get done. That way, you can use the receipts as evidence that you maintained your car properly if and when you need to take it in to the dealer to have it repaired under warranty.
• Make some noise: If a dealer refuses warranty-guaranteed service on your car, speak to a manager or another dealership. Consider filing a complaint with your state’s attorney general. The federal government outlines certain rights for consumers regarding their cars and auto warranties, so why not take advantage of those?

Posted in FTC, Financial Literacy, Personal Finance, your car | Comments Off

Better Consumer Protections for Mortgage Borrowers on the Horizon?

A recent report from CreditBloggers indicates that the Consumer Financial Protection Bureau (CFPB), the new government body created by the Obama administration to improve consumer protections in the United States, plans to create an easy-to-understand tool that will allow potential homeowners to compare the terms of various mortgage loans with greater ease.

Here’s a look at some of the details.

Easier-to-Understand Mortgage Documents and More

• More transparency in lending: According to a press release from the CFPB, the organization plans to join forces with state enforcers and banks to improve transparency in lending tools such as mortgage documents, student loans and payday loans. The goal of this partnership is to better equip consumers with the tools needed to understand loans before they take on such burdens.
• Clarification of mortgage options: One of the CFPB’s specific goals is to provide consumers with an easy-to-understand comparison sheet for mortgage loans. The current forms, apparently, include too much legal and technical jargon and provide little illumination for the average consumer.

So what might this mean for consumers, once the CFPB produces documents to facilitate various borrowing experiences?

Improved Understanding of Consumer Risk

The goal, it seems, is to put consumers in a position of power when they’re making decisions about their finances. Ultimately, services from the CFPB might include:

• Better disclosures on student lending forms: Most student loans are not dischargeable in bankruptcy, but students continue to regularly take on tens and even hundreds of thousands of dollars in debt in order to get a bachelor’s degree. Improved disclosures, explanations and estimates post-graduation earnings could help young students make more reasonable borrowing decisions.
• Tighter restrictions (or clearer terms) at payday loan stores: While some state laws have banned or greatly restricted the practice of payday lending, in much of the country payday lenders still thrive. The CFPB has announced that it plans to play a role in changing the face of payday lending so that it is less alluring and expensive for already struggling consumers.
• Clearer comparisons of mortgage offers: As stated above, more direct methods of explaining and comparing mortgages could potentially save consumers from taking on toxic debt.

Because the financial turmoil we’ve been dealing with for the last few years has had unarguably negative effects on the lives and livelihoods of millions of citizens, it’s refreshing to see the potential for some good (in the form of increased consumer protections) to come out of the bad.

The CFPB is still a fairly new organization; as it matures and extends its reach, it should be making important changes for consumers across the country.

Posted in Bankruptcy and Predatory Lending, Consumer Protection, Financial Literacy, Mortgages, Student Loans, payday loans | Comments Off

What You Can Learn from 2010’s Top Scams

While many people are looking forward to the new year, it’s also important to take time to look back on what we learned from 2010. So here’s a review of some of the major scams that we saw in the past year (listed on WalletPop.com) and what you can do to protect your finances from similar ones.

Protect Your Finances from Future Scams

• Mortgage Relief Scams: Scammers know that people who are feeling desperate make good targets, so times of economic distress provide scam artists with plenty of opportunities for ripping people off. Scams offering fake mortgage relief take advantage of people in danger of losing their homes by offering fake services to negotiate with lenders or change mortgage terms, and real opportunities for struggling homeowners to throw away money they can’t afford to lose. Lesson: You are the only one responsible for saving your home and/or mortgage. If you want help, you must ask for it and do some work to find the right group to provide it.
• Debt Relief & Reduction Scams: Like mortgage relief scams, debt relief scams work by charging consumers steep upfront fees for debt-reduction services that the scammer never delivers. Though new rules have strengthened consumer protections against debt settlement companies (which are sometimes little more than dolled-up scammers), many groups are apparently still finding ways to get around these rules. Lesson: Do your homework before committing to any debt relief firm. Visit the Better Business Bureau, compare fees among companies, and consider your alternatives (like credit counseling and bankruptcy). Most importantly, if something sounds too good to be true, don’t believe it.
• Robocall Scams: These scams work by contacting vast numbers of consumers with recorded telephone messages and promising some attractive service (like quick debt reduction) – naturally, for a steep price. Lesson: Getting out of debt is almost never a quick process. If someone promises a quick fix for your debt, turn the other way and run (and don’t write any checks in the meantime).
• Identity Theft Scams: Identity theft is perhaps one of the most troubling crimes of the information age – correcting the damage done by identity thieves can take hours of time and lead to anger and frustration. And identity thieves are masters at taking advantage of new technologies to get our information – emails, text messages, online buying sites and other popular media have all been used by identity thieves to lure in unsuspecting consumers. Lesson: Guard your personal information carefully. Don’t ever wire money to strangers, reply to unfamiliar emails, text sensitive information or otherwise reveal too much of your personal data.

Keep Your Money Safe in 2011

The sad truth about scams is this: there will always be a new scam out there – the nature of legislation is that it is slow and retroactive, meaning that unscrupulous individuals will always be able to outpace laws. But if you approach your everyday transactions and interactions with reasonable skepticism, you should be able to keep yourself and your money safe.

Posted in Financial Literacy, Foreclosure, Identity Theft, predatory lending, scams | Comments Off

Lawsuit Challenges Legality of Pre-Employment Credit Checks

The U.S. Equal Employment Opportunity Commission (EEOC) has filed a lawsuit alleging that the practice of conducting pre-hiring credit checks by Kaplan Higher Education Corporation, a company that provides test-preparation and post-secondary services, discriminates against certain classes of Americans and is therefore unlawful.

And, in case that’s a little too much legal information for your comfort level, here’s what that means and why it’s good news if you’re struggling with debt and/or recovering from bankruptcy.

So What’s the Deal with Pre-Hiring Credit Checks?

Here’s a look at the basics of employer-conducted credit checks.

• What they are: As part of the hiring process, many employers (as many as 60 percent, according to some polls) have begun running credit checks on job applicants (in addition to conducting criminal background checks). In theory, these credit checks are valuable to employers because they divulge information about an applicant’s overall capabilities.
• Why they’re controversial: While few people oppose the practice of running credit checks for applicants to positions that involve finance, many consumer advocates have spoken out against credit checks for applicants in non-financial fields. After all, if the current recession has taught us anything, it’s that poor credit can have little to do with a person’s responsibility, intelligence and job worthiness. Further, a few states have already made pre-employment credit checks illegal for non-finance jobs.
• The current lawsuit: The EEOC’s charges against Kaplan include allegations that Kaplan’s practice of conducting credit checks before making hiring decisions constitutes to discrimination, because black and Latino Americans reportedly have statistically lower credit scores than white Americans.
• The legal reasoning: According to a Credit.com piece on the issue, the case has teeth because it applies legal reasoning the EEOC used to show that criminal background checks also disproportionately affected black job applicants because blacks are more likely to be arrested than whites.
• The reason it’s important: If the court rules that pre-employment credit checks lead to discriminatory hiring decisions, such credit checks could be outlawed in more states, potentially making employment easier to find for people who have struggled with debt problems.

Potential Outcomes of the Case

While the lawsuit is still in its early stages at this juncture, it has the potential to change the current state of pre-employment credit checks in the U.S. The court could, depending on the evidence presented, rule that pre-employment credit checks amount to discrimination in the hiring process.

This could be good news for people recovering from a bankruptcy filing or otherwise fighting debt burdens, because being denied employment for credit-related reasons can lead to a frustrating and debilitating debt cycle.

In the mean time, you may want to consult with a bankruptcy lawyer if you have been denied employment because of something in your credit report.

Posted in Consumer Protection, Credit, Credit and Bankruptcy, Financial Literacy, Legal Info, unemployment | 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

Bureau of Consumer Financial Protection Overseer Named

The New York Times reported last week that the newly created Bureau of Consumer Financial Protection now has an overseer of enforcement. Richard Cordray, former attorney general of Ohio, was reportedly hired to the post by presidential appointee Elizabeth Warren, who is currently in charge of the bureau.

So what will Mr. Cordray’s responsibilities be in the new post? According to the Times, he’ll be focused on overseeing enforcement actions for a variety of consumer-related financial issues, including the following:

• Foreclosure fraud: Recent financial news like the robo-signing scandal and other questionable foreclosure practices would fall under Mr. Cordray’s purview, it seems. And, as sources note, he ought to be prepared to fight against such questionable bank behavior, since his position as Ohio’s AG included fighting certain kinds of foreclosure fraud.
• Abusive payday lenders: As many debt-laden Americans know, payday lenders can charge outlandish fees and interest rates and lead ordinary consumers into a crippling cycle of debt. As part of his position in the Bureau of Consumer Financial Protection, Mr. Cordray would be responsible for making sure that regulations and laws for payday lenders are sufficient, followed and enforced.
• Questionable bank behavior: On a grander scale, Cordray’s responsibilities may reach as far as making sure larger financial entities like banks and other lenders follow laws designed to keep them from engaging in the sort of risky, fast-and-loose behavior that led to the crash of the housing market and touched off the current recession.

Cordray’s Past Consumer Protection Actions

So how did Cordray get the job? It seems his résumé includes a variety of consumer-friendly moves, including:

• Lawsuits against big financial firms: The Times reports that Cordray managed to squeeze $2 billion from major names in the finance world, including American International Group (AIG), Merril Lynch and Marsh & McLennan.
• Bold strikes at government overseers: Another notch on Cordray’s belt, the Times notes, is that he called out the Securities and Exchange Commission (SEC) for falling down on the job and thus enabling many of the abuses in the finance world that led to our current financial mess.

Role of the Consumer Financial Protection Bureau

Many consumer advocates lauded the creation of the Consumer Financial Protection Bureau, which was outlined in the financial overhaul bill passed early in Obama’s tenure as president. When it is fully up and running, the bureau, headed by former Harvard bankruptcy professor Elizabeth Warren, will be responsible for making sure consumer interests are taken into consideration when lawmakers consider regulatory changes for financial and other matters.

Posted in Bankruptcy and the Economy, Consumer Protection, Economy, Financial Literacy, Foreclosure | Comments Off

Your Post-Bankruptcy To-Do List

If you’ve filed for bankruptcy, you’ve probably already heard a thing or two about how important it is to rebuild your credit. A recent post at CreditBloggers.com provides an excellent guide for how, precisely, a person can begin this daunting process.

Here’s a look at some of the key tips discussed on the post.

Know Where Your Credit Stands

If you haven’t already, now is the time to visit AnnualCreditReport.com and get a free credit report from each of the big three credit reporting bureaus (every American is entitled to one free credit report per year from each bureau). When you get the report:

• Review all the information carefully: Accounts that were discharged in your bankruptcy filing should have a balance of zero dollars and indicate that the debt was forgiven in bankruptcy.
• Look for mistakes: Check for any incorrectly reported information – this could include a report that you still owe money on an account that was discharged.
• Contest the mistakes so they can be removed: If you notice any incorrectly reported information, contact the credit reporting bureau and identify the problem. You’ll probably be asked to send written documentation that you no longer owe the debt, but the process will be worth it because the less your credit report says you owe, the better off your credit will be.

Start to Make Credit Amends

Once you’ve figured out how your credit looks, it’s time to start engaging in the kind of behavior that will replenish your credit report with positive credit actions and thus make you look like a more attractive credit risk to potential future lenders.

One of the most important things to keep in mind while focusing on rebuilding your credit is to be wary of credit scams – they abound, and scammers often target people who have recently filed for bankruptcy. Here are some common scams to avoid:

• Advance fee loan scams: This term covers a variety of scams, but for people trying to rebuild after bankruptcy, advance fee scams might involve someone posing as a lender and “guaranteeing” you a loan – if you agree to pay a fee in order to have that loan offered to you. If, in fact, you were able to get a loan and make regular payments on it, the loan would likely help you rebuild your credit. But if it’s an advance fee scam, what will likely happen is your loan will never materialize and the fee you pay will be gone forever.
• Credit repair scams: These, too, are sadly common. They involve a company promising to “repair” or “wipe out” your credit record – even if the information on it is completely accurate. Of course, this is not legal to do and will end up costing you money that you’d be better off saving or putting toward real credit-building ventures.
• New credit file scams: This variety of scam involves a company giving you a “new credit identity” – essentially, the company gives you an Employee Identification Number (EIN) to use with the credit bureaus in lieu of your Social Security Number. The claim is that you’d get to build credit from a clean slate, but the catch is that this is highly illegal and could lead to jail time and/or hefty fines. Plus, all the time you spend building your “new” credit identity is time in which your real credit identity just languishes.

Posted in Bankruptcy, Credit, Credit and Bankruptcy, Financial Literacy, Loans, after bankruptcy | Comments Off

A Stealthy New Threat to Your Credit Card Information?

A recent report from a Memphis news station warns of the latest risk to the safety of your credit card information: a super-stealthy computerized scanner that a tech-savvy thief could use to get your credit card digits while passing you on the street.

RFID Technology in Your Wallet

Here’s how the technology works, according to the story, and why it might pose a problem for ordinary consumers.

• RFID technology: Something called radio-frequency identification is commonly used in passports, credit cards and debit cards to facilitate transactions. Merchants can process information from RFID-enabled cards with a simple scan.
• Portable computing devices: Unfortunately, the technology that allows for quick transactions in the mall and at the airport also, it seems, opens the door to stealthy identity crimes. The news story mentioned above cautions that a person equipped with easy-to-purchase equipment could discretely scan people’s wallets for card information on the street.
• Potential identity theft: Clearly, having your identity stolen is not a pleasant experience – but being victimized by identity theft while you’re walking the streets and have your guard down can be both frightening and financially devastating.

Should You Be Worried about Mobile ID Theft?

The jury seems to be out on whether or not the potential for RFID-fueled identity crimes will actually translate into a rash of such crimes. An estimated 140 million Americans have some sort of card with RFID capabilities, though, generally speaking, you can guard against identity theft by taking certain precautions:

• Check your bank account regularly: Log on to your online account often and review your monthly statements carefully to make sure that no unusual activity is taking place. The more regularly you check your account balance, the more likely you’ll be to catch a withdrawal from an unauthorized source.
• Shred any sensitive documents: Though we’re well into the digital age, plenty of identity thieves still get their information by rummaging through the trash or recycling bins. Whenever you get documents with sensitive information on them (including your Social Security Number, your bank account numbers and your credit card number), shred them before disposing of them.
• Take only what you need: When you leave the house (especially for longer trips) limit yourself to only the credit cards you’ll absolutely need while you’re away. Limiting your chances of losing one or having one stolen is a smart way to play your odds.
• Change your passwords: If your passwords are easy to guess, change them. Even if they’re not easy to guess, still change them regularly.

The news story mentioned above highlighted the potential for this type of crime to lead to identity theft, but it also mentioned that no actual cases of such crimes have yet been reported – though that could be because the RFID scan theft is such a difficult technique to trace.

Posted in Consumer Protection, Credit Cards, Financial Literacy, Identity Theft | Comments Off