Archive for The Credit Challenged Life
Car Insurance and Your Credit Score
Posted 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
Posted 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.
Christmas Shopping Without Going Into Debt
Posted 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?
Posted 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?
Posted 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.
My Wages are Being Garnished!
Posted 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
Posted 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.
Android Phones for Less than $100!
Posted by: | CommentsJust wanted to pass this along for my readers in the United States:
I received an email today from i-Wireless, a pre-paid cell phone service owned by Kroger. Starting today (July 19, 2011), i-Wireless is selling the Sanyo Zio and the HTC Hero for $99.99.
These are both entry-level phones, of course, but if you’ve been waiting to upgrade to Android but don’t want to get locked into a 2-year contract, this might be a good time to order online or stop by your local Kroger.
Kroger’s i-Wireless plans are comparable in price to Virgin Mobile – you can get 1,000 minutes, unlimited text and 500 mb of data bandwidth for $40 a month. They also have a $60/month plan that includes unlimited minutes, unlimited text and 2.5 gigs of data transfer.
i-Wireless runs on the Sprint network, so coverage in the U.S. should be identical to Sprint’s coverage.
The email didn’t list an expiration date for the $99.99 offer, and I couldn’t find one on the i-Wireless website either. I suppose they did that on purpose to create a sense of urgency. Smart folks.
Anyway, I don’t know anywhere else where you can get a decent Android phone for under $100, so it might be worth checking out.
(Disclosure: The i-Wireless link above is not an affiliate link. I do not receive compensation if you take advantage of this offer.)
Edit 08.03.11: Please see Kelly’s note below. I completely forgot to mention you need to use your shopper’s card to get the sale price. My apologies for the error.
Cheers,
Mike
No Contract Prepaid Cell Phones – They Don’t Suck Anymore!
Posted by: | CommentsNot too many years ago, if you had less than stellar credit, you were pretty much shit out of luck when it came to getting a decent cell phone. You either had to pay a 6-month deposit on a 2-year contract, or go with one of those prepaid TracFones from the local dollar store. At that point, pre-paid minutes were stupidly expensive, and the phones… well, were only slightly better than two paper cups and a piece of string.
I, for one, am glad things have changed for the better.
Quite a few cell phone carriers have realized that they were missing out on a huge market segment by ignoring people with bad credit or no credit. They started offering better plans, better phones and more reliable service. And for the most part, no contract plans are cheaper than contract plans.
How much cheaper? Well, I pay $40 a month for 1,000 minutes, unlimited text and unlimited 3G internet access through Virgin Mobile. A couple of years ago, I paid $70 a month for a contract plan through T-Mobile.
Yeah, but a no-contract plan is still inferior to a contract plan, right?
I guess it depends on what you’re looking for. If you have to have 4G speed, you’re not going to get it through a no-contract cell phone plan – at least not right now. Ditto for the newest, hottest, most pointless Android phones, like the 3D HTC Evo. If your phone is your status symbol, a no-contract plan isn’t going to cut it.
The other disadvantage is that you have to pay full price for the phone. Even if you could get the 3D HTC Evo on a no-contract plan, that beast retails for about $600. So the cost of the phone evens out the monthly savings.
Neither of those issues bother me. I don’t hang my self-worth on what my phone can or can’t do. I’d also rather pay a bit more for the phone up front, knowing that if a carrier offers a model I like better in 6 months, I’m not stuck in a contract.
So what phone do you use, Mike?
LG Optimus V from Virgin Mobile
Right now, I use the LG Optimus. I like it because it’s relatively small (for an Android phone), it has pretty good ratings, and it’s not so complicated to use that my little brain can’t figure it out. I’m a freelancer, among other things, so having internet access on the go is essential for my work (hence, I can justify having an Android phone… or something like that).I paid $149.99 for the phone.
I also looked at the Samsung Intercept. It’s the same size as the Optimus, but has a slide-out keyboard. That’s probably my only regret about choosing the Optimus – it’s easy to fat-finger the virtual keyboard, since the screen is only 3.2″. The slide-out keyboard would have made typing a bit easier. Anyway, my choice came down to ratings and price. The Intercept’s operating system tends to freeze up, and it’s $50 more than the Optimus through Virgin Mobile.
Any problems yet?
Other than the keyboard issue, I’m happy. The 3 MP camera takes adequate pictures for posting on Facebook, emailing to family and whatnot (though, like most phone cameras, it doesn’t have a flash). Unless things have changed, the phone includes a 2-gig micro-SD card for file storage and a USB cable for transferring goodies to and from your computer. The 3G wireless internet is fast enough for me, and call quality is adequate. Again, I’m not a techie, so I’m pretty easy to please.
Anyway, just thought I’d share my experience with my readers. Glad to see some cell phone carriers have stepped up to the plate with one more tool to make the credit-challenged life a bit more enjoyable.
BillFloat – an Alternative to Payday Loans?
Posted by: | CommentsYesterday, a reader asked me about BillFloat. I’d never heard of it, but if there’s a financial tool that will really help, I have to go check it out.
BillFloat is the product of a partnership between Credit.com and PayPal. Essentially, you provide BillFloat with your checking account info, choose your recipient and the amount, and BillFloat will make payment for you. You then choose a date, up to 30 days after the payment, when BillFloat will deduct the payment (plus fees) from your checking account.
Can you use BillFloat instead of a payday loan?
Yes, in some situations. The biggest problem is that you can’t just pay whomever you want. They have a list of about 3,600 recipients, and if the company you need to pay isn’t on the list, you’re out of luck. But quite a few mortgage, installment loan and utility companies are on the list… including my water company, which is a small regional operation.
Limitations
First-time borrowers can pay a bill up to $225 with BillFloat. After you successfully pay BillFloat back, it may (but doesn’t have to) raise your limit for next time. Their website says they use “lots of factors” and “complex equations” to determine your limit, which is corporate-speak for “it’s none of your damned business.” The maximum limit is $1,000.
You also can’t float another bill while the first one is awaiting repayment, at least at first. The Billfloat website indicates that you might be able to float more than one bill at a time after you’ve shown responsible account management, but again, details are nonexistent.
Oh, and your checking account must receive average monthly deposits of at least $1,250. Since payday lenders typically ask for employment verification rather than minimum bank deposits per month, self-employed people might find this service easier to use.
Fees
Now, here’s where BillFloat really has it over payday loans. It charges 3% per month on the amount you float, plus a “bill pay” fee of up to $14.99. The last time I looked, payday lenders were charging as much as 24.99% on amounts you borrow for two weeks (another 24.99% if you extend repayment by another two weeks) – plus a bill pay fee to send the money directly to a payee.
Let’s say you’re in good standing with BillFloat and they’ve given you a $1,000 limit. You need to pay your $1,000 mortgage, and your choices are limited to using BillFloat or taking out a payday loan. Here’s (roughly how things shake out with both options):
Payday Loan: ($1000 * 1.2499 interest) = $1.249.90 + $14.99 fee = $1264.89
BillFloat: ($1000 * 1.03 interest) = $1030 + $14.99 fee = $1044.99
Difference: $219.90 for a 2-week loan.
So What’s the Verdict?
Yeah, if the biller is on BillFloat’s list, and your only other option is a payday loan, Billfloat is a much cheaper choice. That said, I haven’t actually used it, so I have to stop short of recommending this service.
You can check out this service at BillFloat.