Car Insurance and Your Credit Score
By · CommentsIt’s no secret that a low credit score can take a toll on your personal finances. If you have a spotty credit history, you will have difficulty purchasing a home, securing a car loan, and even obtaining a credit card. Even worse, a bad credit score can affect your ability to obtain one of life’s necessities – car insurance.
According to the National Association of Independent Insurers, creditworthiness is directly related to potential insurance losses. Donald Hanson, a spokesman for this national organization, states that people with poor credit scores are statistically more likely to cause accidents than those with excellent credit scores.
Why would credit affect your ability to drive? It’s highly debatable, but according to insurance advisory organizations, financial problems can distract you, preventing you from fully focusing on your driving tasks.
It makes sense that anything that occupies your mind takes your attention off the road. But what’s next? Will insurance companies monitor your conversations at home to find out if you had a fight with your spouse last night? I imagine that’s just as distracting as financial problems. What about worrying about a test at school, a big project at work, or the impending doom of global warming? Where the hell does the insurance industry draw the line?
What makes financial troubles so much more pressing that insurance companies can refuse to approve insurance policies, while other psychological pressures go unnoticed? Hell, some insurance companies want to install devices in your car that monitor your driving habits – why don’t they just force you to wear a stress monitor?
Credit-based insurance scoring is not only goofy – it’s intrusive and irrelevant. Until insurance companies start passing out mood rings to policyholders, the practice of using credit scores to evaluate applicants is absurd, and violates the basic precepts of commerce.
Your New Year’s Commitments
By · CommentsIn general, I’m not a huge fan of New Year’s resolutions. People tend to get amped up about making changes after the new year, but tend not to follow through with their changes. For most people, change is a “wish” – that is, something they would like to see happen, as long as they don’t have to put forth any real effort.
This is why I ask you not to make any resolutions this year.
Instead, I ask you to make New Year’s commitments.
What’s the difference?
Simply put, the difference between a resolution and a commitment is your willingness to take an active part in making your goals happen.
First, you have to decide what will happen. Will you erase all of your debt? Will you double your income so you never again have to rely on credit cards or loans to have the things that make your life enjoyable? Will you scale back your discretionary spending by 25% to tackle your debt? Be specific. Without a specific goal, you don’t have the tools necessary to translate your desires into reality.
Second, you must develop a specific action plan to achieve your goals. How will you erase your debt, double your income, cut your discretionary spending? Strategy is the foundation of change. That’s not to say that your strategy won’t evolve over time… but you need a framework or you’ll never even get started.
Finally, you must commit to your action plan. Decide, right now, that you will not accept anything less than the attainment of your goals. Make your commitment a reality by putting it in writing and sharing it with those around you. Putting your commitment into written words, and sharing those words with people who you will remain in contact with throughout the year, makes you accountable for your actions. This can be a powerful driving force to keep you moving forward, to keep you working toward fulfilling your desires even if the work sucks and you just don’t feel like putting in the effort.
Your life is worth your commitment. Your freedom is worth your commitment.
Start today. Spend an hour per day solidifying your commitment, and you will have a framework as strong as steel to help you achieve the life you have dreamed of.
It doesn’t even matter what day of the year it is. If you’re reading this in the middle of summer, it’s still a perfect time to stop letting circumstances control your life. You don’t have to wait until the next new year… every day you wait is a day you could have devoted to making real, meaningful change in your life.
Which Credit Card Should I Pay Off First?
By · CommentsOwing credit card debt sucks… especially if you carry balances on several cards. You’re paying every month for restaurant meals you’ve forgotten about, groceries you’ve already consumed and possessions you probably no longer use. Even worse, you’re paying interest on all of these purchases.
Worse still, the money you pay on your credit card balances each month eats into your income, leaving you less money for the things you need (and want) now.
It’s no secret that you’ll need to pay more than the minimum payment on your balances each month if you want to get rid of your credit card debt in this lifetime. But trying to pay down all of your card balances at once probably won’t get you anywhere – at least, not very quickly.
Instead, you might consider paying extra on one of your cards each month until the balance is paid off, then applying extra funds to the next card, and so on. Each card you pay off leaves you with more money to apply to the next card balance – a snowball effect.
But which card should you start with?
Here are a few methods to consider:
Pay off the credit card with the highest balance first. You’re probably shelling out the most money each month for the minimum payment on the credit card with the highest balance. Plus, all other things being equal, the highest balance is probably costing you the most in interest. Knocking out this balance will free up the most cash to apply to the next credit card balance once it’s paid off. The down side, of course, is that it will probably take you the longest to pay off this card… it’s pretty frustrating when you feel like you’re not making progress. Once you’re done with that credit card balance, though, you will have made some major headway toward debt elimination.
Also, paying off the credit card with the highest balance can help your credit score, which is partially based on the amount of debt you carry.
Pay off the credit card with the lowest balance first. This option offers more of a psychological benefit than a financial one. You get to knock out a credit card balance relatively quickly, giving you the satisfaction of making progress toward debt elimination. Unfortunately, it also frees up the least amount of money to apply to your next debt.
Pay off the credit card with the highest interest rate first. The higher your interest rate, the more money you’re throwing away for the “privilege” of carrying debt (relative to the amount you borrowed). It’s one thing to pay for past purchases, but it’s quite another to keep giving away money every month for interest. The quicker you pay this credit card off, the lower the total sum of your payments will be.
One caveat – none of these strategies really make sense if you’re behind on one (or more) of your credit card payments. Any benefit you get from paying more toward one of your card balances will probably be more than offset by late/overlimit fees and interest rate hikes on your past due accounts.
Image: Images_of_Money
Christmas Shopping Without Going Into Debt
By · CommentsFamily gatherings, drinking eggnog in front of the fireplace, the excitement of children eager to open presents, and credit card debt… these things are all synonymous with Christmas, right?
Each year, we scramble to buy gifts for our loved ones (and sometimes ourselves)… and since we don’t want to let anyone down or be outdone, we resort to putting gift purchases on credit cards. We figure we can make up for the extra spending in January, and pay off our credit card debt by the next due date.
If you’re like most consumers, things don’t quite work out that way.
When July rolls around, we can’t remember what we bought (or who we bought it for), but the credit card companies haven’t forgotten about our lavish purchases… and they’re still charging us interest on those purchases. If you’re only making minimum payments, you’ll probably still be paying for this year’s Christmas shopping five years from now.
Ugh.
I don’t know about you, but I don’t want to keep paying for my daughter’s Nintendo 3DS long after she’s tossed it in the back of the closet or let her best friend permanently “borrow” it.
So what’s a holiday shopper to do? How do you pay for holiday shopping without digging a deeper financial hole?
Over the next few posts, I’ll talk about some strategies for dealing with Christmas shopping without accumulating debt. You probably don’t want to wait, though, so here’s one strategy I’m using this year:
Layaway.
In case you’re not familiar with the concept, layaway involves paying a small service fee, plus a down payment (usually about 10% of the total purchase price) to hold your items. You them pay a percentage of the balance every week or two until you’ve paid the balance. No interest. No late fees.
When I was a kid, this was a popular way to buy items you couldn’t yet afford, mostly because credit cards weren’t as common as they are today. If I wanted a pricey toy, my mom would put it in layaway, and it was my responsibility to come up with the scratch to make the payments. If I didn’t do that, I didn’t get the toy. So you can bet I busted my ass mowing yards, cleaning gutters and scooping horse poop to make those payments.
Anyway, I thought this concept had gone the way of the pterodactyl. I mean, who the hell does layaway anymore?
Well, it turns out that some major retailers have brought back layaway in response to the seemly endless economic meltdown.
Wal-Mart, for example, offers layaway on most items.
KMart (remember them?) has a great layaway setup – you can layaway items on their website, and make online payments instead of driving to a retail location. When you’ve paid off your purchases, just go to the KMart location you’ve selected to pick up your items.
KMart charges $5 for layaway, no matter how many items you decide to buy. Compare that to the amount you’ll pay in interest if you decide to make your holiday purchases with a credit card.
Next time, we’ll look at another Christmas shopping survival technique you can use to stay out of debt (or keep from digging a deeper financial hole).
Photo: Myeralan
Can I Be Fired for a Wage Garnishment?
By · CommentsI recently wrote a post on the woes of wage garnishment – a procedure that creditors can use to collect debts from you against your will. If you’re facing wage garnishment, be sure to read this post:
One aspect I didn’t touch on, though, is how wage garnishment affects your job security. Johndra from Church Falls, VA, called me on my gaffe:
My employer received a garnishment order today. Can my boss fire me for this?
Admittedly, I had to do a bit of research on this. Although I spent a year in law school, I’m not a lawyer. However, I gained some valuable research skills during my stint in law school, and here is what I found:
Under federal law, your employer cannot fire you for a single wage garnishment. However, if your employer receives more than one wage garnishment in a 12-month period, the employer can fire you.
Here’s how that pans out in non-legal terms:
Say a creditor sues you, obtains a judgment, and executes a wage garnishment. Your job is safe, although your income will be reduced by up to 25%. It sucks monkey farts, but at least you still have a job. But say another creditor decides to sue you and garnish your wages… in that case, your employer can decide you’re not worth the hassle, and can legally fire you.
Make sense?
Obviously, avoiding wage garnishment in the first place is the best solution. If you can’t do that, though, you should seriously consider the potential of another creditor to garnish your earnings. If that’s a distinct possibility, it might be time to contact an attorney to evaluate your options.
Does Bank of Internet (BofI) use Chexsystems?
By · CommentsAs I’ve probably said before, one of the most common questions I hear from readers is this: How do I get a checking account while I’m on Chexsystems?
I won’t go into a description of Chexsystems (and how it can wreak havoc on your financial life) here, as I’ve covered that in other posts. If you want to read more about Chexsystems, check out this post:
Getting a Checking Account While on Chexsystems
Anyway, I’m always looking for banks that accept customers with negative Chexsystems reports. As such, I recently read about Bank of Internet (BofI) – specifically, that they will accept applications even if you have multiple Chexsystems entries.
I decided to apply for a checking account with BofI to see if this is true. I have a couple of Chexsystems entries from past foul-ups, so I figured I would make a good guinea pig.
About five minutes after I applied, I received an email stating that BofI declined my application.The email specifically stated that the declination was based on information obtained from my Chexsystems report.
Although I appreciate the rapid feedback, it looks like BofI is a bust when it comes to getting a second chance bank account – or at least it was for me. I don’t really know what the threshold is – maybe if you only have one entry, you can get a checking account with Bofi. Only the shadow knows for sure.
So for the time being, I’ll stick with my old standbys – ReadyDebit for checking and ING DIRECT for savings. Since I have the two accounts linked, I can transfer money from one to the other electronically. I can’t deposit checks to Ready Debit, but I can deposit them to ING DIRECT and transfer the money to pay bills. It’s not ideal, but it’s a workable solution.
What Questions Will They Ask Me at a Bankruptcy Hearing?
By · CommentsNobody wants to think about the “last resort” of personal financial distress – bankruptcy. Unfortunately, it can be a necessary choice if there are simply no other options left. If you’ve decided that bankruptcy is your only chance for getting your first good night’s sleep in months, you’re probably a bit stressed about one of the necessary elements of bankruptcy – the 341(a) meeting of creditors.
At some point after you file your bankruptcy petition (usually about 30 to 45 days), you’ll have to attend a bankruptcy hearing, formally known as a 341(a) meeting of creditors. The name conjures up images of irate collectors waiting at the courthouse to grind you into the mud and make you feel like total dogshit.
Fortunately, it’s usually not like that. First, the whole ordeal takes about 10 minutes (or less). I don’t know about you, but I can imagine far worse. Even if the bankruptcy hearing involved being spit-roasted, it would still be less painful than sitting through any of the Twilight movies. It’s all relative. But it’s not even that bad.
For the most part, the conversation will take place between you and the bankruptcy trustee. Under federal law, the trustee must ask you several questions:
- What is your name?
- What is your current address?
- Did you read the bankruptcy documents, including the petition and schedules?
- Did you sign the bankruptcy documents of your own volition?
- Is the information in the bankruptcy documents true and correct, to the best of your knowledge?
- Are there any errors in, or items omitted from, the bankruptcy documents?
- Have you listed all assets and creditors on the bankruptcy schedule?
- Have you provided a true and accurate copy of your most recent tax return?
- Do you have an alimony or child support obligation? Are you current on this obligation?
- Have you filed tax returns for the previous four years?
Not so bad, right? Of course, the trustee may also ask additional questions as permitted by state law, but it’s a far cry from a spit-roasting (or watching Kristen Stewart mope for 90 minutes).
But hang on. It’s called a “meeting of creditors” for a reason. Creditors may (but aren’t required to) attend to give you a bit of hell. Mostly, they want you to agree to a reaffirmation, which is a stupid idea unless your debt is secured by collateral. If any creditors bother to show up, your attorney will likely advise you to provide as little information as possible.
So that’s it. 10 minutes (15, tops) and this ordeal is over. Then you go on with life, and the trustee and your attorney go off to a three-martini lunch. Not so bad, especially considering you can finally get a good night’s sleep when it’s over.
Saving Money – The $5 Challenge
By · CommentsSaving money is a daunting task, especially if you are working on a limited budget to begin with. Trust me – as a freelancer and an entrepreneur, there have been weeks when I’ve squeaked by on pocket change between client payments.
Still, I’ve found that most of us can pare down by at least $5 per day. Unless you’re jobless with no unemployment benefits or a college student living on Ramen noodles for weeks on end, you should be able to cut that much out of your budget.
Do you stop for coffee every day on the way to the office? Stop it. A grande latte at $tarbuck$ runs about $5.69 in my neck of the woods. Is that really necessary, when you can grab a cup of coffee for free in the office breakroom?
If you smoke, you’re probably wasting at least $5 a day for the privilege of killing yourself. Go you.
Unless you drive a hybrid, a 10-mile commute will cost you about $5 in gas. Public transportation is much cheaper – plus, you get the added bonus of partaking in some of the most… um, interesting, people-watching that you could find in your city. (For the aspiring fiction novelists among you, this is some of the richest inspiration that money can’t buy.)
Anyway, what can $5 a day possibly do for you?
Well, let’s do the math. Over the course of a month, that’s about $150 you can use to whittle down your debt. Saving $5 a day would give you an extra $1825 a year toward becoming debt-free.
I want to know how you’ve decided to save $5 a day. Think about it. Is it worth skipping your daily latte to get off the “credit grid”? It is worth taking the city bus to secure your financial future? I’m sure you can come up with other ways to save $5 a day to contribute to your own financial success.
My Wages are Being Garnished!
By · CommentsCollection calls and letters are a major hassle, and cause serious stress – I can tell you from experience that dealing with collections can keep you from sleeping at night. It’s on par with being drawn and quartered as far as pain quotients go.
The thing is, if you can’t (or won’t) negotiate with collection agents, things can get far worse. And in this economy, they often do.
See, if a collector thinks you’re holding out on them (whether you really are or not), they can file a lawsuit against you in your county’s municipal or magistrate court. After they obtain a judgment, they can do the seemingly unthinkable – they can take part of your wages to apply toward your debt.
This process, called wage garnishment, can cause you serious financial distress. Federal law allows creditors to take up to 25 percent of your disposable earnings, which is the amount you earn minus statutory deductions such as federal taxes and Social Security payments. 401(k) contributions don’t count. Health insurance premiums don’t count. Even the voluntary contributions you agreed to to help displaced mimes in Siberia don’t count.
All but four states – South Carolina, Texas, North Carolina and Pennsylvania – allow wage garnishment. And once the court has filed a garnishment order, there’s not much you can do. Your employer has to pay the required percentage of your wages to the creditor until your debt is satisfied.
Joy.
Wage garnishment sucks. It’s like syphilis – it damned near never goes away. Each state imposes different rules on creditors that limit the length of time they can pursue wage garnishment after obtaining a civil judgment – in some states, creditors can seek garnishment for 20 years or longer.
You can send the creditor’s attorney proof that you’ve already paid your debt, or that you’ve made your payments on time. Still, it’s your word against theirs. They’ve paid their nominal fees for the privilege of sucking your income away, and they have the legal right to do just that.
Wage garnishment is one of the few things I can think of that could possibly warrant bankruptcy. (If you’ve been reading for a while, you know that I usually recommend doing anything possible to avoid bankruptcy.) Of course, I can’t (and won’t) recommend you file bankruptcy.
If you’ve received a wage garnishment letter, it might be a good time to get in touch with an attorney. Nobody likes the idea of sitting in an attorney’s office – but it might be better than enduring years of a creditor’s attempts to siphon your earnings.
Once a creditor has obtained a judgment and secured wage garnishment, you can’t contest that you owe the debt. Your time for that is over. However, an attorney can help you convince the court that you’ve already paid the debt, or that the creditor screwed up when filing the lawsuit. Believe it or not, it happens more often than most people think.
(The usual caveat: I am not an attorney/financial adviser/credit consultant. I’m just some random guy who has been through a bunch of financial problems. Consult a professional/your mileage may vary/use your own brain. C’mon, I’m just a blogger.)
Mortgage Forbearance – How to Avoid Foreclosure, Part 3
By · CommentsRecently, I outlined the process of using a loan modification to avoid foreclosure. If you haven’t read that post, you can find it here:
Loan Modification: How to Avoid Foreclosure
I also provided information on how to get on a repayment plan, in case you don’t qualify for a mortgage modification:
How to Get on a Mortgage Repayment Plan
But suppose that you don’t qualify for a mortgage modification, and you can’t make higher payments to catch up your mortgage right now. Are you out of luck?
Not necessarily. Lenders will sometimes consider a temporary forbearance, which suspends your payments for a specified period of time. It’s not unlike a student loan forbearance – essentially, you get to skip a few payments without worrying about losing your home. The lender might add your payments to the end of your loan, which means that you will have to make a larger payment before you are free and clear of mortgage payments… but if it saves your house now, it might be worth the tradeoff.
It might seem odd that your mortgage lender would consider a forbearance, but keep in mind that the lender most likely does not want your home. A lender stands to lose $50,000 to $60,000 on an average foreclosure in this market, so giving you a bit of breathing room might serve the lender’s interests as well as your own. There’s no harm in asking.
The important thing is keeping in contact with your lender. Even if you are behind on your payments, contacting your lender shows that you are interested in catching up your payments and keeping your mortgage current. This can help your lender provide solutions to keep you in your home and save the lender the massive expenses associated with foreclosure.
What will you need when asking for a forbearance?
It depends on the lender. In most cases, you will need to provide a hardship statement. This statement details the reason why you cannot currently make your mortgage payments, and outlines a plan for improving your financial situation.
You will probably also need to provide documentation of your income and expenses. Documentation may include utility bills, credit card statements, W-2 forms, profit and loss statements and paystubs.
Gathering all of this documentation is a hassle, to be sure. But all of the hassle is well worth the peace of mind of knowing you can keep your home.
