How to Get Out of Debt With the Get Out of Debt Guy » consumer federation of america

Consumer Groups Call on CFPB to Provide Easy Access to Complaints Filed Against Companies

Steve Rhode — Fri, 27 May 2011 19:19:00 +0000

Consumers Union and a bunch of other groups have submitted a letter to the CFPB to ask that consumers have easy access to complaints filed against companies.

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Washington D.C.- A coalition of consumer, civil rights, good government, and community groups have called on the new federal financial watchdog, the Consumer Financial Protection Bureau (CFPB), to ensure that the public has full and fair access to consumer complaints filed with the agency when it opens its doors this summer.

Members of Americans for Financial Reform (AFR) sent a letter to the CFPB emphasizing that a publicly accessible, user-friendly searchable system benefits consumers and companies alike.

A consumer complaint database that allows individuals access to complaint data empowers consumers to make wise pre-purchase decisions, while saving the agency time and money. It also allows researchers to assist the agency in detecting risky trends and unfair practices before they reach epidemic proportions.

Public access to consumer complaint data achieves both transparency and accountability, and encourages industry to operate at its best, the groups told the CFPB in a letter today.

“Even before it opens its doors the CFPB has presented itself as a new breed of regulator. We strongly support the agency’s efforts to blend public input and transparency with its new mortgage disclosure forms,” says Consumer Action’s Ruth Susswein. “A publicly searchable database fits seamlessly into the Bureau’s efforts, while providing consumers with firsthand information that helps them avoid trouble.”

The groups have encouraged the consumer bureau to follow in the steps of its sister federal agencies, the Consumer Product Safety Commission which has offered consumers access to its safety database since March, and the National Highway Traffic Safety Administration that has operated a publicly searchable database since 1966.

“An open and transparent complaint process will benefit households and businesses. We want people to be in a position to make informed choices, and a user-friendly searchable database is an important step toward achieving that,” says AFR executive director Lisa Donner.

“Providing consumers with the information they need to make smart financial decisions is a central part of the CFPB’s mission,” said Pamela Banks, senior policy counsel for Consumers Union, the nonprofit publisher of Consumer Reports. “It’s essential that consumers have easy access to complaints collected by the CFPB so they can protect their families and avoid financial scams and rip-offs.”

Certain sensitive information would remain private, but the groups maintain that direct access to the types of complaints that people report, and how a company handles those matters helps consumers prevent problems.

Access to actual complaint data also removes the hollow argument that consumer complaints are merely anecdotal.

Groups that signed on to the letter:

Americans for Financial Reform
Center for Responsible Lending
Citizens for Responsibility and Ethics in Washington
Consumer Action
Consumer Federation of America
Consumers Union
Empire Justice Center
iSolon.org
National Association of Consumer Advocates
National Consumer Law Center (on behalf of its low income clients)
National Community Reinvestment Coalition
Neighborhood Economic Development and Advocacy Project
National Fair Housing Alliance
OMB Watch
OpentheGovernement.org
Project On Government Oversight
Public Citizen
The Sunlight Foundation
U.S.PIRG
Washington Coalition for Open Government – Source

Consumer Groups Make the Case to Not Exempt Debt Settlement Attorney Model From Regulation

Steve Rhode — Thu, 08 Jul 2010 14:49:34 +0000

From How to Get Out of Debt

This letter was sent in by a loyal tipster, thank you.

@GetOutOfDebtGuy

Oppose the House Offer on H.R. 4173 to Exempt Attorneys Engaged in Unfair, Deceptive or Abusive Consumer Financial Practices

June 22, 2010
House-Senate Conferees, H.R. 4173 Washington, DC 20510
Dear Senator or Representative:

Americans for Financial Reform and the undersigned organizations – including several that have or serve attorneys – urge the House-Senate Wall Street Reform and Consumer Protection Act Conference to reject the House offer to create a broad exemption for attorneys from the rules addressing unfair, deceptive or abusive practices.

We support the ability of the Consumer Financial Protection Bureau, where appropriate, to develop carefully crafted exemptions for attorneys on a case-by-case basis from specific rules. The CFPB has that power in the base text. But we oppose any broad exemption from the CFPB’s jurisdiction for the “practice of law,” activities “incidental” to the practice of law, or work under an attorney’s “direction.” Attorneys and others under their cloak have used exemptions to shield many unfair activities from consumer protections. The House language would prevent the CFPB from addressing the following abuses:

Loan modification scams. Foreclosure prevention and loan modification outfits that harm vulnerable consumers are rampant among attorneys. The House offer broadly exempts these services.
- Any activities purporting to help avoid foreclosure or modify a loan can be described as “practice of law” or “legal services to a client,” even if the work performed is no different than the scam services provided by nonlawyers.
- Exemptions from state laws have been exploited: “In my 21 years in attorney discipline, I have not seen a crisis of this magnitude,” said Interim California Bar Chief Trial Counsel Russell Weiner. “The number of attorneys using their law licenses to essentially take money from unwary but trusting consumers is astounding.” The crisis led California to eliminate the attorney exemption from its foreclosure consultant statute.
- Under the exemption, nonlawyer loan modification firms could continue to recruit attorneys—as they do on Craigslist right now—and claim to be operating under their “direction” or providing “incidental” services.
Debt settlement scams. Attorneys have engaged in the same shady practices as nonlawyers, collecting up-front fees with an illusive promise to renegotiate credit card and other debt.
- An offer to renegotiate debt could be “practice of law” even if no different from nonlawyer services. Again, nonlawyers can recruit attorneys for cover.
- The CFPB, which would take over debt settlement from the FTC, would not have the same power to address abuses. In March, the FTC obtained an order against an attorney involved in practices to obtain thousands of dollars from consumers based on false promises to solve credit and debt problems.
Arbitration. The debt collection law firm Mann Bracken was an integral part of the unfair and deceptive arbitration practices uncovered by the Minnesota attorney general, who forced the National Arbitration Forum out of consumer arbitrations due to the conflicts of interest in the interwoven ownership of the “judge” (the NAF) and the collectors (a conglomerate that included Mann Bracken).
- Mann Bracken was engaged in the “practice of law” in the debt collection actions and would be exempt under the House language.

Attorneys are not exempt from the FTC’s jurisdiction now when they engage in unfair or deceptive practices and there should not be a gaping hole in the CFPB’s jurisdiction. Like the FTC, the CFPB will have no interest in or power to regulate the general practice of law. The base text exempts attorneys unless they engage in consumer financial products or services, and the CFPB can write its rules to avoid unintended impacts on lawyers just as it can protect the legitimate practices of other industries. But broad exemptions for the practice of law have led to enormous problems in the past and will in the future if attorneys are broadly exempt from CFPB rules.

For more information, contact Lauren Saunders, National Consumer Law Center, (202) 452-6252 x 105, lsaunders@nclcdc.org.

Yours very truly,

Americans for Financial Reform
California Reinvestment Coalition
Center for Responsible Lending
Consumer Action
Consumer Federation of America
Consumer Watchdog
Consumers Union
Empire Justice Center
Lawyers’ Committee for Civil Rights Under Law
Leadership Conference on Civil Rights
National Association of Consumer Advocates
National Community Reinvestment Coalition
National Consumer Law Center (on behalf of its low income clients)
National Council of La Raza
National Fair Housing Alliance
Neighborhood Economic Development Advocacy Project
A New Way Forward
New York Public Interest Research Group
Sargent Shriver National Center on Poverty Law
www.ourfinancialsecurity.org
U.S. PIRG Western States Center

Source: Letter

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The Latest Delivery of TASC and USOBA Debt Settlement Horseshit to the FTC.

Steve Rhode — Fri, 18 Jun 2010 20:47:28 +0000

From How to Get Out of Debt

There were some recent interesting meetings over at the Federal Trade Commission. These involved the proposed telemarketing sales rules the Federal Trade Commission is going to put forward. The first meeting was with representatives of The Association of Settlement Companies (TASC) and the United States Bankruptcy Alternatives (USOBA) in attendance.

At the June 3, 2010 meetings from TASC were: Andrew Strenio, Sidley Austin LLP; Andrew Housser, CEO of Freedom Debt Relief and TASC Board Member; Robert Linderman, General Counsel of Freedom Debt Relief and TASC Vice President; and Wesley Young, Legislative Director of TASC. In attendance from USOBA were: Jonathan Massey, Massey & Gail LLP; John Ansbach, Legislative Director of USOBA; and Samuel Brunelli, Team Builders International. – Source

Here are some statements from the FTC published notes from those sessions that just seem unbelievable for the debt settlement industry to say but the consumer groups made some very good points in a followup meeting for the Federal Trade Commission to consider in order to protect consumers.

The representatives said that although interest and fees are added to consumers’ debts while they are in the program, about 50-60% of consumers are already delinquent on their debts when they contact the debt settlement company. [So balances in a debt settlement program DO go up.]

The representatives said that another problem with an advance fee ban is that a contingency fee model would result in a power shift to the creditors; creditors would know that the negotiator would not get paid anything until a settlement occurs; thus, the creditor would offer smaller debt reductions because it would believe that the negotiator would take any settlement in order to get paid. The representatives said that creditors are advocating for the advance fee ban in this proceeding and in state legislatures because it would help them financially. [Major Horseshit.]

The representatives said that the better debt settlement companies engage in significant consumer education about debt collection, and there would be little incentive to engage in such education if an advance fee ban is imposed. In addition, companies would have the incentive to get as many people as possible enrolled in the program; even if 80% drop out, the company would receive some fees eventually, but this structure would hurt consumers. [Seriously?]

The representatives stated that in Freedom Debt Relief s program, of those who dropped out before completion, 52% received more in debt reductions than they paid in fees, and 75% received at least one settlement. They also stated that statistically, most dropouts occur in the first 4-5 months. [So 25% pay 4-5 months of fees and get no benefit and 48% paid more in fees than relief? Seems like a great reason to not allow upfront fees.]

The representatives stated that they have determined, through financial modeling based on Freedom Debt Reliefs data, that if they had to operate under an advance fee ban, it would take them five years before they were cash-flow positive. [Because they have a front loaded business model. If they adjusted their business model they'd be better able to make the switch. The wrong business model is not a reason to support a failed model that harms consumers.]

A USOBA representative stated that they undertake background checks of member companies; they engage in a secret shopper program; they suspend a company from membership upon the first violation of their standards and terminate the company upon the second violation; and, finally, in the last 30 days, they instituted a “zero tolerance” policy for use of government imagery in debt settlement advertising. [I've written about specific examples of bad acts of USOBA members and I find it hard to believe that USOBA takes those bad acts seriously at all.]

The representatives made the following statements in closing: it is risky to impose an advance fee ban, as a pure contingency fee model has no track record in the debt relief industry. [So because we can show that the majority of consumers get an insufficient benefit or pay more for debt settlement services when they are charged on an advance fee rather than a performance fee, that's bad? How can it be argued that paying for actual services received by the consumer is not a fair approached?]

On June 8, 2010 the FTC Commissioner met with representatives the consumer groups Consumer Federation of America, Consumer Action, Consumers Union of U.S., National Consumer Law Center, and Mid-Minnesota Legal Assistance, along with a representative of the Office of the Maryland Attorney General. – Source

At that meeting the consumer representatives made the following positions:

The representatives stated that the ban on advance fees is the essential piece of the proposed rule. They stated that in debt settlement programs, the majority of consumers who enter the programs do not get their debts settled. If any companies go out of business in response to an advance fee ban, they wil be the companies that do not provide actual services to consumers anyway. [That is a valid argument. Since debt settlement companies do not escrow funds these funds can be lost to consumers if the debt settlement company goes out of business as is the case with attorney based debt settlement company Allegro Law.]

The representative of the Maryland Attorney General’s offce said that in enforcement actions, the states repeatedly find that companies sign up consumers indiscriminately, even though debt settlement is only appropriate for a small fraction of consumers. In many investigations, it appears that the debt settlement counselors are simply salespeople whose only goal is to sign people up for the program. [Seems to be exactly the way it really is over most of the debt settlement industry.]

The representatives said that the fundamental business model of debt settlement is
problematic; people save hundreds of dollars in a bank account, but the majority of the money is used to pay the company’s fees, making it impossible for consumers to save for settlements. Consumers are set up to fail but pay advance fees to fill the coffers of the businesses. Moreover, a number of debt settlement companies have said that they can operate without taking fees in advance of settlement. [That's correct. Currently, debt settlement companies have a failed business model that requires them to constantly rake in new fees since they already spent the fees received from people already enrolled but spent them in advance of settling debts or providing real services.]

The representatives said that the companies are utilizing a large share of the upfront fees they collect on advertising and paying lead generators for consumer names/contact information. Some lead generators charge $500 per lead. Moreover, the companies are not actually spending money on individualized financial counseling; they provide off-the-shelf budgeting information to consumers, information that is free from many consumer organizations and other sources. [That's a valid argument. I don't see many debt settlement companies providing financial counseling. It seems to be all about the sale.]

The representatives emphasized that under an advance fee ban, if the debt settlement company produces results in a prompt and timely fashion, it wil get paid in a prompt and timely fashion. [That sounds like a point I've made before. If debt settlement companies enrolled people that were prepared fro settlements they would get paid potentially in months, not over five years. Enroll the right people and get paid in the manner you want. Doh!]

The representatives said that the data submitted by TASC are not reliable and were not subject to audit, but even if you assume the industry data are accurate, they show that most consumers pay for results that are not delivered. [That's true, the debt settlement industry has been hesitant and resistant to provide vetted data to support their positions.]

he Commission should also consider banning advertising of savings rates unless 80% of customers achieve the advertised savings rate, and the rate accounts for the provider’s fees. [That seems reasonable and transparent.]

The Commission should impose a carve-out to the face-to-face exemption for debt relief services so that debt relief companies cannot evade an advance fee ban by hiring a runner to go out to consumers’ homes to get them to sign contracts, thus qualifying for the face-to-face exemption. [That's a fair position it seems. If runners were sent it would violate the spirit of the new rules so we might as well address that now.]

In conclusion, the representatives said that an industry with hundreds of law enforcement cases fied against companies in the industry does not deserve a safe harbor. [Well that's an excellent point. Hard to argue against that one especially when a number of Attorneys' General have gone after debt settlement companies.]

@GetOutOfDebtGuy

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How to Be Financially Successful When You Graduate

Amanda Miller — Wed, 09 Jun 2010 01:24:03 +0000

From How to Get Out of Debt

Congratulations! You’ve made it through the starving student years and now you’re ready to start a job and earn some real money. You’re probably thinking about all the things you’ll be able to buy, places you’ll go and things you’ll be able to do when those paychecks start rolling in.

Not so fast. If you’re like all the people who just assume they’ll figure things out as they go along, you’ll probably end up just like them— in debt. But if you’re smart about your money, you’ll end up way ahead of the game.

Plan Ahead, Double Your Money

Okay, I admit it. For most of us (except maybe some of the business majors) planning sounds boring, boring, boring. But what if I told you just a few hours with a paper and pencil might help you double your savings and investments? Research by the Consumer Federation of America and NationsBank found that people with incomes as little as $10,000 to as much as $100,000 who reported having a written financial plan, had twice as much money in savings and investments as people who said they didn’t have a plan. Now does it sound a little more interesting?

You’re probably not ready to hire a financial planner yet, but you can take a few hours to think about your goals — what you want, how much you need and how you plan to get there. Write down what you want, figure out how much it will cost and then look at how you can get the cash to get it. You probably have a lot of goals right now, like buying a car and vacationing in the Caribbean, but it’s unlikely you’ll be able to get it all immediately. Be honest. If you can’t swing as much as you’d like right now, scale back a little. Just put away what you can and don’t fall into the trap of thinking that if you can’t afford something you can just borrow to get it. Otherwise, you’ll wind up with a big chunk of that paycheck going to lenders every month.

A good exercise is to take one month to track every expenditure you have — every soda from a vending machine, coffee, snack, lunch out, pack of gum that you buy. After you spend a month doing this, you will be able to see areas where you can cut back on spending: drink coffee at home rather than buying it at work, bring a soda from home and pack a lunch regularly. Make going out to lunch a treat rather than the norm.

Where Does the Money Go?

Your salary may seem like a lot of money at first, but wait until you see how far it goes — or doesn’t go! Along with the new feeling of having a regular income will be the experience of paying expenses that you’ve never had before. Before you even get your hands on your earnings, Uncle Sam and the other tax guys are going to take a nice chunk out of those checks. Then you’ll have all kinds of living expenses, not to mention the things you just want. One study by the student financing organization Sallie Mae found that the average college grad needed to earn $38,512, before taxes, just to support his graduation debts and financial obligations. Ouch!

So the first thing is to hold off on big purchases until you get a realistic picture of how much you need to cover your bills and still leave some spending money. There may be some expenses you’ll overlook until you actually start working (clothes for work, travel, food, subscriptions). You may be surprised at how fast your money goes, especially if you were living in a dorm and eating through a dining plan at a college cafeteria. Housing, utilities and food cost a lot. The U.S. Department of Agriculture states that a man between the ages of 20 and 50 should spend between $126 and $250 a month on food, and a woman between the same ages should spend between $115 and $227 a month. So try to get a few months under your belt before you start spending freely.

Generally, before making any big changes in your financial picture, you should have enough money saved to be able to live for three to six months without an income. This is a good amount to cover any unexpected emergencies, layoffs or if you decide this job just isn’t for you.

Getting Around Without Going Broke

You gotta have a new set of wheels, right? And the car dealer will probably tell you that you can get into a great car with really low monthly payments. But wait a minute. Those wheels will cost you a lot more than you probably realize. In fact, the average car will cost you nearly half a million dollars over your driving lifetime!

How is that possible? Well, cars cost a lot more than the payments. There’s insurance, gas and maintenance, and they all add up. Before you let a new vehicle drive you to the poorhouse, think about your alternatives.

Buy a good used car. A good used car that holds its value could be your best bet. That way, if things don’t work out at your current job, you’ll be able to sell it for at least as much as you owe. And, of course, it will cost less over the long run.
Forget a car and use public transportation. If you really need to use a car for out-of-town trips or special occasions, consider renting one. It will be cheaper than owning one for a year.
Share a car. Organizations are popping up all over that allow you to use a car for just a few hours when you need one. Visit www.carsharing.net for more information.

Whatever you do, avoid buying or leasing a car that will obligate you to pay big monthly payments. What happens if you don’t like your new job or it doesn’t work out? How will you make the payments then? Also, steer clear of four and five-year car loans. If you need to sell the car after a couple of years, you’ll probably find that you are “upside down” (owing more on the loan than the car is worth).

Paying for That Education

The six-month grace period on your student loans may give you some breathing room, but those six months fly by. Find out what your payments will be and figure them into your spending plan. Also, consider paying extra each month to pay them off faster. You can always send in a few extra dollars with your payments and, over the long run, they will really add up.

Different lenders have different options to pay off student loans, but if you have a federal student loan, you generally have the following repayment options:

Standard Repayment Plan. You make fixed monthly payments of at least $50 over a fixed period of time — up to 10 years. Under this plan, you would probably pay the lowest total interest because the repayment period is shorter than that of the other plans.
Extended Repayment Plan. This plan gives you more leeway by extending repayment over a period of The six-month grace period on your student loans may give you some breathing room, but those six months fly by. 12 to 30 years, depending on the total amount borrowed. You would still pay a fixed amount each month of at least $50, but monthly payments are probably less than under the Standard Repayment Plan. Remember, however, that you will probably pay more interest because the repayment period is longer.
Graduated Repayment Plan. Under this plan, your payments start small and increase every two years. This gives leeway to recent graduates whose incomes start low but increase steadily. The repayment period lasts 12 to 30 years, depending on the total amount borrowed. Again, if you use this repayment plan, you will probably pay more interest because the repayment period is longer.
Income Contingent Repayment Plan. This plan bases monthly payments on your income and the total amount of federal loans that you borrowed. Your monthly payments adjust with your income — the lower your income, the lower the payment and vice versa. You would have up to 25 years to repay your student loans. After 25 years, any unpaid amount would be discharged but you will have to pay taxes on the discharged amount.

If you have a private student loan, contact your lender to find out your repayment options. If you run into trouble and can’t make your student loan payments, you may have several options until you’re back on your feet. If you have a federal loan, you may be eligible for a deferment or forbearance.

These options are only available to you if you talk with your lender before you fall behind on
your payments, though, so you have to ask before you’re too strapped.

A deferment allows you to postpone making payments on your loan (and even cancel certain federal loans) if you meet specific eligibility requirements.

Some of the requirements for deferment or cancellation are:

Economic hardship
You work as a full-time elementary or secondary school teacher in a designated area serving low-income students; you teach children with disabilities; or you teach math, science, foreign languages, bilingual education or other fields designated as teachershortage
areas. (The Department of Education annually publishes the
Directory of Designated Low-Income Schools for Teacher Cancellation Benefits. Check your school’s financial aid office for this directory.)
You are a student in school
You are a parent or working mother
You are a full-time professional provider of early intervention services for the disabled or a full-time employee of a public or nonprofit agency providing services to lowincome, high-risk children and their families
You have a temporary total disability, and
You are unemployed.

Depending on the type of federal loan you have, the federal government may or may not pay the interest accruing during the deferment period. If you must pay the interest, you can do so by making interest-only payments during the deferment period or you can let the interest accumulate and be added to the loan amount when the deferment period ends.

Even if you have other unanticipated personal or health problems but don’t meet the requirements for a deferment, you may be able to get a forbearance of loan payments. During a forbearance period you may make no payments or reduced payments. Interest will continue to accrue during the forbearance period and will be added to the loan amount when the forbearance period ends.

Home Sweet Home

Tired of dorm living or a crowded group house? Ready for that dream apartment, or maybe even a house? Before you sign a lease on a new place or even start house hunting, take some time to choose the best digs for your dollars. If you are having a problem affording a lease, you can look for a landlord who will give you a break on the rent in exchange for you doing some work on the place. Whatever route you take, living alone or with roommates, try to avoid long-term lease commitments until you are sure your job and any roommates will work out.

If you want to live on your own, look at all the expenses in the picture. Do you get free parking? Are utilities included in your monthly rent? If utilities are not included, your housing expenses will increase substantially. You may have bills for power, gas, telephone, water, and if you get cable, you add another $30 or so to your expenses each month. If utilities are not included, you need to pay attention to things that will jack up your power bill. Take into account such considerations as whether you’re in an older home, whether you have an air conditioning unit and whether you have central heat.

If you go the roommate route, you need to take care to protect yourself. There are plenty of horror stories out there about people who weren’t careful and ended up with huge financial responsibilities. Make sure that all roommates are on the lease, so that everyone is equally responsible for the lease payments. Be sure you are confident that your roommates can afford their share of the lease payment. Keep in mind that each person listed on the lease will be liable for the full lease payment if another person on the lease doesn’t pay his or her share.

A lot of people mistakenly think that they don’t have to worry about their roommate’s financial behavior. Be aware that any late or nonpayment of rent caused by your roommate can affect you for a long time. Even if your late rent payments don’t show up on your credit report (and stay there for the seven-year reporting period), they will hurt you when you are ready to move into a new apartment or house. Also, you could end up losing your deposit if your roommates damage the property or skip out on the lease.

You should use the same caution with your utilities. If you get the utilities in your name, you are responsible for all payments due, and it is up to you to get reimbursed by your roommates. If you try to hold out and wait until your roommates are ready to pay their share and the payment is late, this late payment can be reflected on your credit report and hurt you later in life, even though it wasn’t really “your fault.”

To protect yourself and make sure your bills are paid on time, you should come up with a system with your roommates. Some roommates put different utilities in different roommates’ names, so that no one person is personally responsible for all utility bills. The roommate in charge of a particular bill can divide the bill amount by the number of roommates and require each roommate to pay his or her share at least 10 days before the actual due date to make sure the bill payment is sent on time. You can have “bill night” where all roommates get together, order pizza and pay the bills.

Another way to make sure all roommates are protected is to have each roommate put a certain amount of money in an account, totaling $500 or so, to cover unexpected emergencies. If a utility is in your name, be sure to have your name removed from the account when you move.

A great (although usually unattainable) option for college grads with the time, energy and money is to buy a house that needs some work and fix it up. Although low down payment loans are available, if you decide to move in the next few years, you could wind up owing more than your house is worth. A larger down payment can keep you out of that trap. If you can rent part of it to roommates, you may end up with a great, low-cost investment on your hands.

Plastic Pointers

Those credit cards may seem like your passport to the good life right now, but nothing will sink you faster than an overloaded wallet that’s always getting a workout.

Here’s the reality: credit cards are great for convenience and to help you out in a jam, but if you run up a lot of bills you can’t pay quickly, you’ll pay a hefty price for that convenience.

The chart below shows how much you’ll pay in interest alone and how many years (in parentheses) it will take you to pay off a balance if you only make the minimum payment on your credit cards:

It’s a pretty good bet that two major credit cards will be enough. You can use one for day-to-day purchases that you pay in full every month. The other card should have the lowest interest rate you can find, and you’ll save that one for real emergencies when you know you won’t be able to pay it off right away.

If you don’t have a major credit card when you graduate, it’ll be tough to get that first one. This is truly a case where you’ll find out that it takes credit to get credit. If you find yourself in that bind, consider a secured credit card, which is a major credit card that requires a security deposit. Pay your bills on time each month and it shouldn’t take long to build a good credit rating and get all the credit you want.

Protect Your Credit Record

A lot of recent graduates make the mistake of charging up now with the expectation that they’ll be able to pay it all off later, when they are making the big bucks. They believe that they’ll get a high paying job soon enough and, at that time, they’ll have no problem paying off all their debt in full. That may or may not be true, but regardless, those months or years of nonpayment will be on their credit report for at least seven years.

Your credit report is your key to your good financial future. Anytime you need credit — for a mortgage, an auto loan, a credit card, student loans for graduate school, even getting a lease on an apartment — your creditor will look at your credit report to determine if you are a good credit risk. Some recent graduates who don’t pay attention to their credit reports now will get a big surprise later when they want to buy a new car and can only get an auto loan with a 20 percent interest rate.

According to the Fair Credit Reporting Act, negative information stays on your credit report for seven to ten years and can continue to be reported indefinitely to prospective lenders, insurance companies and employers if you apply for a loan or insurance for more than $150,000, or for a job that pays $75,000 or more. You keep your credit report clean by consistently paying your bills on time and having a reasonable amount of debt and open credit. The more consistent your payment history in your credit report, the better credit risk you are.

It’s a good idea to get a copy of your credit report to see what information it has. There may be inaccurate information in the report that you should dispute. A dispute form should accompany the credit report, and you should include a copy of any documentation you have that shows the information is wrong.

To order a consolidated copy of your credit report, containing information from all three credit reporting bureaus, visit GetOutOfDebt.org online.

Get Ahead Now

Now’s the time to start saving and investing for your future. “But I have no money!” you complain. C’mon. Do you really think it’s going to be easier “someday?” The more you make, the more you’ll want to spend. So get in the habit of saving now. Starting early means you’ll have to put aside a lot less to reach your goals than if you wait.

Here’s an example from The Truth About Money, a great book by Ric Edelman. Suppose you’ve set a goal of having $100,000 socked away by retirement at age 65. (You’ll need a lot more than that, but this is just an illustration.) If you start saving at age 20, assuming a 10 percent return, you’ll need to put aside only $9 a month. If you wait until you’re 30, you’ll have to invest $26 a month; at age 40 it becomes $75 a month; and if you really procrastinate, at age 50 you’ll have to sock away $239 a month. Starting early pays off big time!

If you’re intimidated by investments, consider starting an investment club or joining one in your area. Generally, there are a lot of tools that you can use to save, including mutual funds, money market funds, investing in stocks, traditional and Roth IRAs, or simple savings accounts.

One of the easiest ways to save is to have money taken directly out of your paycheck. An example of this is a 401(k) plan through your employer. A 401(k) plan is a great way to save, especially if your employer matches your contributions.

Matching works as follows: let’s say you put 10 percent of your gross monthly paycheck (before taxes) into a 401(k) account; your employer would put in a matching amount into your account. After a certain vesting period (during which time you must continue working for that employer — maybe two to five years) the matching amount is guaranteed.

If your employer offers a 401(k) plan, find out the following:

How much does your employer match? Some employers don’t match at all, however if yours does, this is free money you are passing up if you don’t participate.
What is the total amount you can contribute to the 401(k) plan?
How long you must work before you can start contributing to your 401(k) plan?
How long the vesting period is?
How well the funds have performed?

If your employer does match, a 401(k) is one of the best saving tools you have for retirement.

Whatever investment tool you choose, start saving something now. That means today!

When the Going Gets Tough

Not everything will be smooth sailing from here on out. You can’t predict what may happen; you could become ill and have to leave work, or your job may not be there forever. If you’ve kept yourself out of too much debt and saved part of every paycheck, you’ll weather the storms a lot easier.

Good luck!

Debt Settlement Trade Group Blaming New York Activists for Debt Settlement Legislation But Banks Were In On It As Well

Steve Rhode — Wed, 05 May 2010 20:21:53 +0000

From How to Get Out of Debt

Interesting messages floating around about the Debt Settlement Consumer Protection Act of 2010. At least one debt settlement trade group is trying to vilify the creators of this legislation by saying the bill was secretly drafted by New York based liberal activists.

But the major drivers of this bill appear to be primarily D.C. based entities and while the debt settlement industry wants to say the bill was drafted in secret for the past nine months, I happen to have an email showing others were in on the legislation and knew of it before it was made public.

Sure the National Foundation for Credit Counseling scored a coup on this bill but take a look at some of the other entities that were in the loop as well as National Foundation for Credit Counseling (NFCC), Consumer Federation of America (CFA) and the National Consumer Law Center (NCLC) that applauded the bill.

Bank of America
Capital One
Credit Union National Association
Discover
Financial Services Roundtable
HSBC
MasterCard

So before everyone gets their britches in a bunch that this bill is some liberal only undertaking, you might want to ask the banks what they did or did not do to stop it. It appears they had members in the loop.

@GetOutOfDebtGuy

Business Noticing Increase in Credit Card Purchases. Not a Good Sign.

Steve Rhode — Sat, 19 Dec 2009 14:55:22 +0000

From How to Get Out of Debt

The story below caught my attention. An early sign that things are getting worse for consumers. When you notice a noticeable uptick in credit card use in a down economy that means that more people are running up debt when they can’t afford to pay. Yikes!

POLK COUNTY (Bay News 9) — During these tough economic times more Americans appear to be turning to plastic when they’re making purchases, and business owners are noticing.

Crowder Brothers Hardware has sold hammers and nails to people in Polk County for three-decades.

And while many small businesses are struggling, their customers keep coming in.

“You can put off buying a new car or some new clothes,” said Bruce Phillips owner of Crowder Brothers Hardware. “But if your toilet is leaking you don’t have that option of saying, ‘well we can let it go — we’ll fix it in a few months.’ So, we’re fortunate there.”

Phillips says the biggest change he’s noticed through the years is that his cashiers now swipe more credit cards than they count cash.

“We’ve probably seen credit card usage go from 30 percent up to now 50 and 60 percent,” Phillips said.

But as more consumers get used to swiping, more are finding themselves in the red.
Americans now owe an estimated $850 billion in credit card debt, which is four times as much as in 1990.

Consumers aren’t the only ones affected by the increase. Small business owners like Phillips say they’re also paying a price as the popularity of plastic rises.

“Cash is king,” Phillips said. “Credit card — we pay a percentage to have those processed and that affects our bottom line profit.”

The Consumer Federation of America reports 58-percent of people with credit cards do not pay their balance in full each month.

Watch video.

Source: Business noticing increase in credit card purchases

Banks Agree to Wipe Out Up to 40 Percent of Credit Card Debt But Watch Out.

Steve Rhode — Fri, 31 Oct 2008 14:51:17 +0000

From How to Get Out of Debt

Credit card lenders include Discover Financial Services LLC, Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Capital One Financial Corp., American Express Co. and HSBC Holdings have finally come together with the help of the National Foundation for Credit Counseling, Consumer Federation of America and the Financial Service Roundtable to start the process of creating a debt solution, other than bankruptcy or credit counseling.

That could be potentially really good news for consumers as it starts to make some major movement towards the perfect debt assistance program I outlined before.

At the heart of this new initiative is the Office of the Comptroller of the Currency giving banks permission to write off up to 40 percent of the balance owed on credit cards on a case by case basis. If banks did this it would give consumers a possible solution to pay what they can afford without bankruptcy. That is good news.

But with every good news story there is a catch, and pretty significant ones at that. Banks don’t want to book the loss on the loan until the consumer pays off the reduced balance through a payment plan. That will mask the true losses by the banks under this plan for years. But the primary reason for this is probably because the banks want to and will come back in full force and vengeance to collect the total amount due and then some, if consumers fail to complete the entire plan as scheduled. That could be very dangerous for consumers that have a slip or two during the long and difficult 60 months of repayment.

Worse yet is that rather than in bankruptcy where consumers do not have to pay any income tax on the amount of debt forgiven, in this plan, they will. The group is asking that borrowers be able to defer payment of income taxes they will owe the IRS on the forgiven part of the debt until after the remainder was paid off. You have to pay income tax on forgiven debt, just as if you earned the money. That just puts the banks squarely ahead of the government and leaves the consumer with potentially years of additional debts payments to make after five years of paying back creditors.

No Lingering Tax Liability- Unlike now, where any forgiven debt is taxed by the IRS as if it was earned as income, except for debt discharged in bankruptcy, the IRS needs to not bill consumers for the that amount owed that creditors may write off under this plan. Getting a tax bill for debt you already can’t pay is a strong disincentive for consumers to even bother with repayment. – The Perfect Debt Assistance Program

And the forgiven debt tax issue is a big one. If banks write off a total of $60,000 worth of debt to help you avoid bankruptcy, depending on your tax rate you can wind up with an IRS obligation of $12,000, more or less. Finishing a long and hard repayment schedule over five years only to wind up owing the IRS and paying for another couple of years seems cruel and a huge disincentive.

Scott Talbott, senior vice president at the Financial Services Roundtable is quoted as saying that under this plan “Both parties win”. I’m afraid that is an optimistic statements at this point and while we are potentially headed towards a good plan, we are not there. Right now I’d have to say the current plan heavily favors creditors.

Currently, the only thing the plan does is potentially leads consumers into a five year payment plan that is not binding on the creditors under law, leaves the debtor owing the IRS at a latter date, masks the banks write offs until the reduced debt is paid.

Since the plan is not binding, it will only take the actions of one creditor with excessive collection pressure, or arbitrarily changing their mind to conform with then current bank policy to continue participating to tank the whole repayment plan, maybe years into it. And creditor flip flops are not a worry of something that might happen, they happen now in a normal debt management plan, especially as creditors buy and sell portfolios of debts.

If the plan fails years into the repayment plan, consumers will have wasted years of struggle and payments and potentially be in worse shape than if they just went bankrupt to begin with. In order for this plan to be effective it must be contractually binding, just like an Individual Voluntary Arrangement (IVA) in the UK is.

Even though I once served on the board of directors of a consumer credit counseling office that was a member of the National Foundation for Credit Counseling (NFCC), I have been hypercritical of the NFCC in the past, feeling as if they are not doing enough to defend consumers against bad creditor behavior and actions since they are primarily paid by the creditors. But for this effort of trying to create a new solution for debtors I’ll give Susan Keating, the president of NFCC, a provisional thumbs up for finally seeing the light that better solutions for problem debt need to be made available to consumers, other than the traditional debt management plan (DMP).

I also see my old contact at Consumer Federation of America, Travis Plunkett, is quoted as saying that “In this case we have a clear common interest”, we do Travis but we’ve got further to go before this is a good plan for consumers other than bankruptcy, where no lingering tax liability exists and the plan is binding on the creditors. Keep up the good work Travis.

Having spent the past few years in the UK and working with similar plans there, this new debt write off plan being put forward here could be something great but unless we tighten up some major issues, as I laid out in the perfect debt assistance program I’m afraid that it will not be as beneficial for both parties as it could be.

A final sticking point is that this plan only address part of the consumers financial struggles and does not provide a single solution to address all debts, as bankruptcy does. Not mentioned in this plan is how consumers in trouble would be able to incorporate a failing mortgage into one single and coordinated solution handled by a third part in the time of monetary crisis. If a plan can be created that address all the issues and wraps things up into one package, then we’ve got a world class solution.

Keep working on this guys, we are halfway towards a decent debt repayment solution for good people with bad debt.

Steve

How to Get Out of Debt With the Get Out of Debt Guy » consumer federation of america

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