Below is an email I received from a former client last week regarding an alleged debt he had with Discover. We are posting it here with permission in the event that this information will help others in a similar predicament.

“Mark:

Discover filed suit against me back in March 2011 for approx. $20,000.  I called them prior to the suit and offered a flat $4000.00 to settle. They were BEYOND rude. Threatening all kinds of action – telling me I would lose my house and potentially my job if I didn’t pay in full. So – I said “sue me”.

I hired a local attorney who challenged the suit asking for the original signed application, proof of charges etc. Discover backed down and the judge dismissed the case with prejudice so no chance of them ever coming back on me.

While I am not proud of this – I have NO guilt because Discover had a chance to get $4K. In the end, they ended up with zero. It cost me $500.00 in attorney fees.

I know this is not a normal outcome (my lawyer said we had a 50/50 chance of prevailing) but I thought you might like to know.”

I would agree with my client’s attorney that this strategy doesn’t always work. But if you have no other options, you can always request that the creditor prove their claim with legitimate supporting documentation and hope (and pray) that they lost the paperwork.

Again, this strategy is not foolproof, but in this case it worked.

According to a new report released by the Federal Reserve Bank of New York, total consumer indebtedness was $11.5 trillion (as of March 31, 2011) — a reduction of $1.03 trillion (8.2%) from its peak level in September 2008.

However, consumer indebtedness was *up* $33 billion from just 3 months earlier in December 2010.

Some people feel that this recent increase is a sign that our economy is on the mend because people are now spending again and taking on more debt.

Other people argue just the opposite. Their contention is that a rise in consumer debt simply validates that the economy is *not* improving and people are taking on more debt because they don’t have sufficient funds to pay down their debt.

Who really knows what the data truly means? I’m just relaying the facts. You can interpret it however you wish.

Some other interesting trends and statistics from the report include:

• About $1.2 trillion of consumer debt remains delinquent, with $890 billion being at least 90 days or more past due. Compared to a year ago, the percentage of consumer debt that is delinquent has fallen 15%.

• Data for Arizona, California, Florida and Nevada continue to indicate higher than average delinquency and foreclosure rates.

• The total number of open credit cards is 24% lower than its 2008 peak. The balances on those cards are nearly 20% less than what they were at the end of 2008.

• In 2001, the percentage of consumers that had an account in collection was 8%. In 2011 that figure is up to 14%.

To read the full report from the Federal Reserve Bank of New York, here’s the link:
Quarterly Report On Household Debt And Credit, May 2011

For additional analysis:
Consumer Debt Stops Declining After Nine Consecutive Quarters

Because of social media, people are now more connected than ever before.

Sure it might be nice to share your life with family and friends on sites like Facebook. But that also means debt collectors can find you on Facebook as well.

It’s a double-edged sword.

So if you’re having financial difficulties, does that mean that a debt collector can post to your Facebook wall or announce it via Twitter in an attempt to embarrass you about your current situation?

In a word, no.

Mark Schiffman of ACA International (the trade association for collection agencies) says that they caution their members to be very careful about using social media to contact people that might owe money.

“You can’t write on someone’s wall on Facebook. You can’t harass. You can’t threaten. The laws are pretty clear in that regard,” Schiffman says. “These laws are not guidelines: They are laws. And we believe firmly that any debt collector who is breaking the law or not following the rules, deserves to be held accountable for their actions.”

According the the Federal Trade Commission, debt collectors may not …

• Harass or verbally abuse you.
• Publish your name if you’re past due on a debt.
• Falsely claim that they are an attorney or from a government agency.
• State that legal action will be taken if they don’t intend to actually follow through.

Even though the law is pretty clear, some debt collectors still flagrantly disregard the law.

In Florida, attorney Billy Howard is suing a collection agency that has harassed one of his clients via Facebook.

“They’re using Facebook because it adds that extra shock value. The more shocking, the more harassing, the more outrageous, the more these debt collectors get paid,” Howard says. “What makes it so dangerous is you can contact somebody’s family and friends very quickly and very easily, and you can set off a domino effect of panic that can be devastating.”

The Fair Debt Collection Practices Act (FDCPA) is the law that specifically states what debt collectors can and cannot do to collect a debt. It’s purpose is to protect consumers from abusive debt collection practices.

However, the FDCPA was enacted back in 1977 when social media, email and text messaging didn’t yet exist. Therefore, the FTC has indicated that they might want to revise the FDCPA to include guidelines for technology that didn’t exist 30+ years ago.

In summary, if you’re going through a rough patch financially because you lost your job or some other legitimate reason, that doesn’t mean you have to go into hiding. You’re still allowed to have friends.

Just be smart about whatever information you make available publicly. Because if your friends and family can read it, so can debt collectors.

For more information on this topic, please read:

Debt Collectors Trolling Facebook

It’s true that when you have a bunch of credit card debt hanging over your head, all you think about over and over is, “How am I going to come up with this month’s payment? Will I ever pay these debts off? How did I rack up this much debt in the first place?”

The focus is usually solely about the money.

But whether you consciously realize it or not, excessive debt is wreaking havoc on other aspects of your life as well.

I just ran across a really good article by Lynnette Khalfani-Cox where she does a nice job of outlining the ramifications of excessive debt beyond just the obvious financial component. She says …

“The real price tag of debt isn’t the financial cost associated with owing others. It’s the toll that debt takes on every area of your life.

Debt wreaks havoc on you emotionally, causing physical and mental stress. Debt taxes relationships, leading couples to argue more, or divorce. Debt limits your personal and career options, keeping you in a dead-end job or unable to move because you owe too much money on your credit cards or your mortgage.

So stop thinking that becoming debt free is simply a way to improve your wallet. Think instead about how becoming debt free will improve your entire life, including your health, your relationships and your overall emotional well-being.”

I also really liked her take on debt and personal responsibility …

“We’d all like to blame someone else for our debt woes and our financial problems. The “irresponsible” ex-spouse who ran up the bills. The “stingy” boss who wouldn’t give us a raise. Or maybe even the “greedy” bankers who gave us credit and loans in the first place!

But to get out of debt, you have to accept responsibility for your predicament. You have to think about the choices YOU made, the things YOU did – or did not do – that led to your current state of financial affairs.

It’s only by seeing your own level of personal responsibility that you become empowered. You have to start to think: “If I got myself into this mess, I have the power to get myself out of it.” At the very least you need to ask yourself: “How did I contribute to my debt?” And more importantly: “What can I do to help turn things around?”

Over 3 years ago, I wrote a similar article on debt and personal responsibility as well.

To read Ms. Khalfani-Cox’s complete article, here’s the link:

Creating The Right Mindset To Get Out Of Debt

Last week the Federal Trade Commission published its 33rd annual report summarizing their efforts to protect consumers from deceptive, abusive and unfair debt collection practices.

As has been the case in recent years, the FTC received more complaints about debt collection than any other single industry. (Big shock, I know.)

Specifically, the agency received 140,036 debt collection complaints in 2010, up from 119,609 complaints in 2009. The top three categories of complaints about third-party collectors were:

• Calling repeatedly or continuously;

• Misrepresenting the character, amount, or status of the debt (including demanding a larger payment than is permitted by law); and

• Failing to send consumers a statutorily required written notice about the debt and their rights.

The FTC report also outlines their investigation into the debt buying industry. The timing is kind of ironic given the fact that just today a story hit the news wires about Minnesota Attorney General Lori Swanson suing Midland Funding, LCC.

The basis of Ms. Swanson’s lawsuit is that it claims that Midland Funding “robo-signed” (sound familiar?) affidavits that resulted in lawsuits being filed against consumers for debts that often could not be substantiated. Sometimes Midland supposedly filed suit against innocent consumers whose names were similar to the people that allegedly owed the money.

To read the full story about the Midland Funding situation up in Minnesota, here’s the link:

Minnesota AG Sues Midland Funding

Back to the FTC report real quick …

Here’s a video from the FTC describing your rights as a consumer against debt collectors. Before I watched this video I thought it was going to be a typical bland video that doesn’t really offer any useful info, but I have to say I was pleasantly surprised. It was actually pretty good.

Check it out:

Source:
http://www.ftc.gov/opa/2011/03/fairdebt.shtm

Forget about Facebook, YouTube and Twitter for a moment. Here’s a fascinating site to check out when you need a 5-10 minute diversion: www.USDebtClock.org

Here are just a few of the statistics it tracks:

• U.S. National Debt
• Debt Per Citizen
• Debt Per Taxpayer
• Debt Per Family
• Savings Per Family
• Total Personal Debt
• Mortgage Debt
• Consumer Debt
• Credit Card Debt

This list just barely scratches the surface. You’ll find WAY more statistics when you visit the site. Check it out. It’s pretty interesting.

Also, each statistic on this site includes a reference for further research if you’re interested.

www.USDebtClock.org

I came across a great article yesterday on The Huffington Post about how people are coping with debt. The headline that originally attracted me to this article was, “The American Dream Is For Sh*t“, so I just had to check it out.

The article focuses primarily on people that got behind on their mortgages, and their thought processes and emotions as they dealt with their financial problems. What I found interesting is that people with mortgage problems were experiencing nearly the same feelings and anxieties as people with credit card debt problems. The similarities were uncanny.

For example:

Although researchers find that some underwater borrowers who could continue paying their mortgages strategically default anyway, the vast majority continue to pay. Many homeowners, out of a combined sense of fear, shame, courage and morality, resist making what is otherwise a logical financial decision.

Walking away from a home, however, is more than the sum of a few business decisions. For many homeowners, it’s either an act of civic defiance against a system they no longer buy into or the end result of being shuffled around by institutions that don’t help them solve their financial problems.

The article further went on to say:

The hostility people felt from their banks made the decision to walk away easier for many, and some now even revel in it, celebrating a break from a system they see as rigged against them. “We get daily calls from creditors and banks that threaten this and that, and I just laugh knowing I am helping to bring down the system that has brought us all down and continues to reap giant profits at the expense of the little guy,” said one. Others are still haunted with shame by the decision. Most said they felt a mix of both.

Many of the homeowners said they felt alone and powerless in their interactions with the banks and were curious to hear what other people in similar situations had to say. “There should be support groups for people who have to deal with these banks,” said Richmond Burton, 50, a soon-to-be-former resident of Long Island’s East Hampton. “It can drive you crazy. I’m very good at dealing with pressure, and they made it feel like you’re at their mercy.”

In speaking one-on-one with several thousand people over a period of 15 years in various levels of financial distress I can say without a doubt that most folks are good, honest, decent people that want to do the right thing and honor their financial obligations. No one ever thought that someday they wouldn’t be able to pay their bills. However, when reality hits, it can be a terrifying experience.

Hearing about how other people dealt with their financial problems can be very comforting. Yes, you’re still going to need to address your financial challenges. But at least you know that you’re not alone, and many others are (or were) in the same boat as you.

If you’re having financial difficulties right now, I strongly recommend that you check out this entire article ASAP. It’s worth it. Here’s the link:

The American Dream Is For Sh*t

There are several things to consider when you are trying to decide between bankruptcy vs. settlement. The first of which is whether your debt is secured or unsecured.

Unsecured Debt

Unsecured debt is money owed for medical bills, department store credit cards and regular credit cards. They’re not secured by an underlying asset or security. A good rule of thumb to distinguish between secured debt and unsecured debt is whether a creditor can take back any property to satisfy the debt.

If handled correctly, many times a creditor will accept 50% of the total amount or less to satisfy the outstanding balance — sometimes going as low as 25-30% of the outstanding balance. It all depends on the creditor or collection agency you’re dealing with and their individual policies and parameters.

Keep in mind that discounted lump sum settlement normally only apply to unsecured debts.

Secured Debt

Secured debt is money owed on a vehicle, home or other personal property that can be repossessed (or liened) to satisfy a past due amount.

In addition, child support, alimony and student loans can usually be treated as secured debt in most cases even though no property is attached. Reason being, child support, alimony and student loans are difficult, and in some cases impossible, to discharge in bankruptcy. For this reason, these debts are usually treated as a secured debt.

Bankruptcy As A Last Resort

Bankruptcy can remain on your credit report for up to 10 years. Bankruptcy is also a matter of public record for anyone that wants to know. For some people this is a big deal, for others it is not.

For those who work in a sector that requires a security clearance or background check, this could put their jobs in jeopardy.

Filing bankruptcy also requires that you appear in Federal Court for one or more hearings.

It has been found, however, that by far the biggest reason that people do not wish to file bankruptcy is a matter of personal responsibility. In other words, the moral obligation to repay the debt. Most people are good, decent and honest and want to do the right thing when possible.

The Truth About Credit Card Debt Settlement

It’s true that settlement can be a good alternative to bankruptcy, but here are a few things you should know:

1. Regardless of what people might tell you, it is usually going to take months to reach a settlement with your credit card company. In many cases, a credit card company will not offer much if any settlement until your account is at least 4-6 months past due.

2. Your credit score will get damaged. This is the trade-off for substantial debt relief without the need to file bankruptcy.

3. You will continue to receive collection calls. Unfortunately this is a by-product of going through the debt settlement process. However, it’s not the end of the world and it will usually only be for a few months of your life.

Lastly, you can take the do-it-yourself approach to debt settlement or you can hire an experienced firm to assist you. People have achieved very good results with each method. It all depends on your negotiation skills, time available for this project as well as your comfort level in talking with debt collectors.

For more information on this topic, please visit:

http://www.hoffmanbrinker.com/faq-debt-settlement.html

http://www.hoffmanbrinker.com/videos

On Oct. 27, 2010, a new law called the Telemarketing Sales Rule (TSR) becomes active. This rule is designed to keep debt settlement companies from charging exorbitant upfront fees for their services. In addition, this rule will make debt settlement companies wait until a debt has actually been settled before they can collect their fees.

The TSR will also require that debt settlement companies offer full disclosure to clients seeking help. For example, they must inform prospective clients that they will continue to receive collection calls during the process,  and that no specific results are guaranteed and that the client’s credit report will be adversely affected.

Certain debt settlement companies will also need to clean up their advertising as well. No longer can they advertise that they routinely settle debts for pennies on the dollar. I’m sure you’ve seen these misleading ads on TV, radio and in magazines.

Why This Law Was Needed

With the difficult economy of the past few years, many people found themselves facing serious financial difficulties for the first time in their lives. I’m talking about good, honest, decent people not being able to meet their financial commitments. My phone consultations with these folks often began with, “Mark, I never thought in a million years that I would not be able to pay my bills … “.

Many people ran out of options, felt hopeless, and felt they needed a lifeline. Sadly, some companies exploited the misfortune of others and created debt settlement “programs” that grossly overstated the results that could be achieved. Thankfully, not all debt settlement companies are like this, and many do provide a legitimate service for a reasonable fee. However, enough people were harmed by unscrupulous debt settlement companies that it warranted the creation of this new law.

A Good Law For Consumers

I usually feel that the government should leave people’s personal financial issues alone. But in this instance I agree with this law because too many desperate people were being taken advantage of. Now under the TSR, debt settlement companies will either have to be honest or leave the industry.

I’ve worked in this industry since 1995 and there are plenty of reputable debt relief firms that provide valuable services at reasonable rates. People experiencing financial difficulty deserve the option to get professional help, but they don’t deserve being ripped off or mislead. In time, I believe this law will clean up the industry and ultimately be a good thing for consumers.

For more information on services provided by reputable firms, please click here

A question that I’ve gotten over and over is, “Is there any way to repair my credit after I complete the debt settlement process?” Actually, there is.

However, before proceeding we need to be in agreement on one thing. That is, there is no quick fix to restoring your credit report.

If you just settled your outstanding credit card balances for less than full balance, you have to remember that there is a trade-off for receiving substantial debt relief without filing bankruptcy. And that trade-off is that your credit report is going to get dinged. That’s just how things work. There’s no way of getting around it. Every client that I’ve ever worked with understood this before they began the debt settlement process.

In the unfortunate event that no one told you that your credit report would be adversely affected, I’m sorry about that. But all is not lost. Let’s now discuss your options moving forward.

The Fair Credit Reporting Act

Regarding your credit score, the Fair Credit Reporting Act (FCRA) clearly states that the maximum amount of time that a derogatory item may stay on a person’s credit report is 7 years. But it does not say that it *must* remain for 7 years. Only a *maximum* of 7 years.

So here are your options:

A. Do nothing, and your credit report will gradually recover on it’s own in time … worst case scenario >> 7 years.

B. Be proactive and take steps to try and clean up your credit report sooner rather than later. Based on feedback from my clients over the years, they often report that with a little effort they’ve sees their credit score return to a respectable level within 2-3 years, sometimes sooner.

If you choose option B, you can take the do-it-yourself approach or you can just pay a reputable firm to do this for you.

Getting It Done

Now, I’m all about saving money and I’m not afraid to roll up my sleeves and get my hands dirty. But when it comes to trying to clean up your credit report, I usually encourage people to just pay a reputable credit repair service firm to do this task for them because the credit repair process is very meticulous and time-consuming (translation: an exercise in wading through bureaucracy).

Here is the firm that I have been referring my clients to for years >> www.lexingtonlaw.com

They’ve been around since 1991, they’re very affordable, they really are a law firm and they usually produce good results. They’ve got the credit repair process worked out to a science, and in my opinion they can perform this task much more efficiently and effectively than you or I could on our own.

That’s my 2 cents on how to go about credit repair.

For more information on the FCRA:

www.ftc.gov/os/statutes/031224fcra.pdf

Additional resources:

Consolidate Credit Card Debt

For the next 15 minutes I want you to take a quick break and watch this video. It has nothing to do with credit card debt, but that’s precisely the point. Anyway, just trust me, it will be worth it.

Here’s some quick “news from the field” from just last week.

Last Monday, two of my clients attempted to negotiate a settlement for less than full balance on their respective credit card accounts. Ironically, these 2 accounts were with the same credit card company. But that’s beside the point and purely coincidental.

Anyway, on Monday each client was told by the credit card company that “no settlement was available at all“.

Each client then came to me slightly discouraged and wondering what to do next. I reminded them that certain credit card companies (especially this particular one) are often very stubborn, and they know that most people will give up when they encounter any type of resistance.

I then explained to my two clients that if it were me I’d wait a couple days and go back to the credit card company and re-present my settlement proposal. In other words, just good old-fashioned persistence.

That’s exactly what these two clients did.

End result? On Wednesday of last week, one client settled her account for 40% of the balance and the other for 60% of the balance. These results were achieved when just 48 hours earlier they were told that “no settlement was available”.

Nothing fancy here. Just a little persistence.  

For more free information on credit card debt settlement, please visit:

www.hoffmanbrinker.com/videos

Earlier this week, an article appeared in the Minneapolis-St.Paul Star Tribune describing how some citizens of the state of Minnesota are being sent to jail for having past due credit card debt. As much as I hate to say it, apparently this is really happening.

However, the article is somewhat misleading because the actual reason why these people were arrested was for allegedly failing to comply with a court order or failing to appear for a court hearing in connection with the debt, not the fact that the debt was unpaid. In other words, the people in the article were jailed for a legal technicality.

Although some debt collectors would like you to believe that you can be arrested for an unpaid debt, it is not a crime to owe money. Debtors’ prisons were legally abolished in the United States in 1869.

However, some debt collectors are just plain ruthless in their collection tactics and they’ll stop at nothing in trying to intimidate people into paying. According to attorney, Michael Kinkley of Spokane, WA, “The law enforcement system has unwittingly become a tool of the debt collectors. Debt collectors are abusing the system and intimidating people, and law enforcement is going along with it.”

What’s Really Going On Here

I believe this article will be one of many news stories that will be “leaked” to the press as part of an ongoing public relations campaign by creditors and debt collectors in an attempt to demonize people with outstanding debts. Their goal will be to try and instill a belief in the public consciousness that anyone with an outstanding debt is an evil, immoral, irresponsible, good-for-nothing, low-life scumbag that needs to be locked up if they can’t pay.

And no, I’m not a conspiracy theorist. I honestly believe this is what’s really going on here.

If you go back to the Star Tribune article, one of the people that was jailed had a measly $250 debt, yet they chose to make an example out of her and “send a message” to anyone else that might owe money. As previously mentioned, certain creditors would like you to believe that past due debt equates to jail time, when in reality that’s not how things really work.

For Some Creditors, It’s Better To Be Feared Than Loved

In my consulting practice over the past 15 years, I’ve talked with several thousand people in all stages of financial distress. And make no mistake, the biggest fear that people have is with regard to the legal system. They are scared to death of lawyers, lawsuits, courts and judges. And I don’t blame them one bit.

But don’t think creditors and debt collectors don’t know this. They absolutely do, and they’re doing their best to exploit this fear.

However, my experience is that the vast majority of people with past due debt do not get sued. Lawsuits take time and money. In addition, suing someone does not guarantee that a creditor will recover any money. As the old saying goes, “You can’t squeeze blood from a turnip.” Creditors are very aware of this as well.

So if you’re having financial challenges right now, just keep your head up and do your best. That’s all you can do. And don’t worry about the debt police because you cannot be arrested for an unpaid debt.

If you’d like to read the full article from the Star Tribune, here’s the link:

http://www.startribune.com/investigators/95692619.html

There’s been a lot of talk lately about the new credit card law that went into effect on 2-22-10. In case you missed it, here are some of the highlights:

• Credit card companies are now required by law to disclose how long it will take you to pay off the balance and how much interest you’ll accrue if you just make the minimum payments.
• Credit card companies are also required to show you how much needs to be paid each month to pay off a balance within three years.  NOTE: The Detroit Free Press published a really neat graphic to illustrate these first 2 points and it can be found here.
• Credit card companies cannot raise interest rates on existing credit card balances. In addition, rates can’t be raised unless the account is at least 60 days past due. If payments are made on time for six consecutive months, the original rate must be restored. In the past, if you made a late payment on even just one credit card, a loan or even a utility bill, that could trigger interest rate hikes on your other credit card accounts … also known as a “universal default”.

There are additional changes, but these are 3 of the big ones. For more complete coverage of the new credit card law, please see the links at the bottom of this article.

No Debt, No Worries

Many financial journalists and bloggers are spending a lot of time discussing the new credit card law and how it will affect you, not to mention how the credit card companies might now try to creatively (but legally) come up with new ways to charge consumers. 

I don’t know about you, but modern life is complicated enough without having to learn a whole new set of rules/regulations/policies/procedures regarding my credit card or having to read credit card industry trade journals.

Therefore, if you want you want the quick and easy interpretation of the new credit card law, here it is:  If you don’t have outstanding credit card debt, this new credit card law does not affect you.

Keep in mind that the new credit card law assumes that a person has an outstanding balance on their credit cards. But if you pay off your credit card bill(s) in full each month, you don’t have to concern yourself with the new credit card law. Yes, it really is that easy.

Simple Is Good

I haven’t carried a balance on my credit cards for nearly 15 years, and I know plenty of other people that live a perfectly normal life without credit card debt.

It’s all about being disciplined and not spending more than you earn, and having the courage to just say no when everyone around you is using their credit card like a drunken sailor.

When you live within your means and commit to paying off your credit card bill(s) in full each month, your life immediately becomes simpler and less stressful. You’ll gradually pull out of the system that used to own and control you. And it’ll be one of the best decisions you ever made.

For additional information on the new credit card law:

http://www.federalreserve.gov/consumerinfo/wyntk_creditcardrules.htm

http://freep.com/article/20100304/COL07/3040482/1088/New-credit-law-means-youll-see-what-you-pay-in-long-term

http://www.federalreserve.gov/creditcardcalculator/

Over the past several weeks there have been numerous reports slamming credit card companies for their alleged shady policies and practices. I’ve even seen where certain individuals are leading a “debtor’s revolt” against the credit card companies to “send them a message”.

Ira Rheingold, director of the National Association of Consumer Advocates, has said, “Banks have done really well figuring out ways to screw people without making themselves legally liable.” On some specific items I agree wholeheartedly with this statement. 

As someone that has worked in this industry for the past 15 years helping consumers resolve their excessive credit card debt, you might be expecting me to jump on the bandwagon and further villify the credit card companies. If so, I’m sorry to dissappoint you.

The reality is that the availability of credit cards does much more good than harm. Consider the following:

Convenience

• Can you imagine trying to make a flight or hotel reservation by going to a local travel agent and writing a check? Not a chance. Nearly everyone these days makes their travel reservations online at their convenience … with their credit card.
• How about shopping? I don’t know about you but I do the majority of my shopping online, especially during the holidays to avoid long lines and crowded malls. Doesn’t matter if it’s 2am in the morning. I buy my stuff and UPS delivers everything right to my front door in a matter of days. But none of this would have happened without a credit card.
• How about something as simple as putting gas in your car? I can’t remember the last time I went inside to pay with cash. Nowadays it’s pay at the pump with your credit card. Easy peasy lemon squeezy, and I’m done.

I could go on and on with more examples, but you get the point. Credit cards absolutely do make modern living very convenient. 

Commerce

• Every year hundreds of billions of dollars are spent on goods and services using credit cards. Businesses would lose a ton of money if everyone were forced to go back to the olden days of paying via cash, check or money order.
• I suppose you could make the argument that slowing things down a bit by going back to the old-fashioned methods of commerce could be good for the environment as well as curb overconsumption. But even if everyone stopped overconsuming, the lack of credit cards would still harm many legitimate businesses by removing a quick and easy form of payment.

So, yeah, credit cards definitely do help keep the economy moving.

THE REAL REASON WHY MANY PEOPLE ARE MAD AT CREDIT CARD COMPANIES

There is definitely room for improvement at many credit card companies. I’m not disputing that. However, what I have found is that a lot of peoples’ anger and resentment is not really about the interest, late fees or overlimit fees. It goes deeper than that.

The real issue for a lot of people is that they are mad at themselves because they spent beyond their means, plain and simple. And they want to make the credit card company out to be the bad guy because they overspent. 

There, I said it.

Let’s remember that no one puts a gun to our head (in most cases) and forces us to make purchases with our credit card. It’s all voluntary. And if you pay off your bill in full each month you don’t incur any interest or fees. Not a penny. It’s actually a pretty good deal as long as you remain disciplined about your spending.

Yes, there are certainly situations where a person might have no other choice but to temporarily use their credit cards just to get by, such as paying for unexpected medical expenses or to buy groceries for their family while they are unemployed. That’s fine. I have no problem with that.

But you have to remember that credit cards are not monopoly money. Eventually you’re going to have to pay the money back, probably with some interest. I think any reasonable person understands and accepts this.

The problem I have is when people start making bogus excuses when it comes time to pay their bills. If you owe the money, you owe the money. It doesn’t matter if your debt was incurred from a 60-inch plasma TV (that you really didn’t need) or from basic living expenses just to survive, either way you owe the money. And if you can’t pay as originally intended, then you’re going to need to explore other options for resolving your debt.

IT’S OK TO BE MAD (JUST DON’T STAY MAD TOO LONG)

If you screwed up and spent too much, just admit it and accept responsibility.

I’ve screwed up financially. I have friends and family that have screwed up financially. I’ve had clients that have screwed up financially. It’s ok. It doesn’t mean you’re a bad person. It simply means you “miscalculated”. It happens. Move on.

What really matters, though, is how you respond to your financial mistakes. Are you going to be the “victim” and blame everyone else for what happened? Or are you going to accept responsibility for what happened and immediately begin taking corrective action to try and fix the problem? That’s what really matters.

 Links to debtor’s revolt articles:

http://www.huffingtonpost.com/2009/09/14/debtors-revolt-woman-refu_n_285394.html

http://www.huffingtonpost.com/2010/01/04/ben-pavone-california-law_n_410630.html

Love him or hate him, there’s no denying that Michael Moore is not afraid to speak his mind and challenge the status quo. Although I don’t agree with all of his views, I’ve always admired Mr. Moore for having the courage to ask the tough questions and keep people accountable.

His latest movie, Capitalism: A Love Story, was released last month. On his website, Michael Moore says that the number one question he is constantly asked after people see his movie is, “”OK — so NOW what can I DO?!”

Mr. Moore responded with a 15-point action plan offering real-life solutions that normal everyday people can implement. Many of the solutions encourage people to be politically active, which is fine, but we won’t cover them here. However, 3 of his 15 points have to do with personal finance and personal responsibility, and I couldn’t agree with him more. Here they are:

• Get rid of all your credit cards but one — the kind where you have to pay up at the end of the month or you lose your card.
• Do not invest in the stock market. If you have any extra cash, put it away in a savings account or, if you can, pay down on your mortgage so you can own your home as soon as possible. You can also buy very safe government savings bonds or T-bills. Or just buy your mother some flowers.
• Take care of yourself and your family. Sorry to go all Oprah on you, but she’s right: Find a place of peace in your life and make the choice to be around people who are not full of negativity and cynicism. Look for those who nurture and love. Turn off the TV and the Blackberry and go for a 30-minute walk every day. Eat fruits and vegetables and cut down on anything that has sugar, high fructose corn syrup, white flour or too much sodium (salt) in it (and, as Michael Pollan says, “Eat (real) food, not too much, mostly plants”). Get seven hours of sleep each night and take the time to read a book a month. I know this sounds like I’ve turned into your grandma, but, dammit, take a good hard look at Granny — she’s fit, she’s rested and she knows the names of both of her U.S. Senators without having to Google them. We might do well to listen to her. If we don’t put our own “oxygen mask” on first (as they say on the airplane), we will be of no use to the rest of the nation in enacting any of this action plan!

To read Michael Moore’s entire 15-point action plan please click here

During the past several months, a number of our clients have received very official-looking notices in the mail regarding credit card debt relief, possibly suggesting that there might be some government sponsored program to assist people with excessive credit card debt.

Upon reviewing these notices they turned out to be nothing more than cleverly disguised direct mail advertisements from debt settlement firms. They used terms like “National Council For … ” and “The Department Of … “, complete with an official-looking seal and a mailing address in Washington, DC. Some even resembled an IRS notice or a W-2 form.

Some made mention of “program eligibility” and others made reference to the “Government Economic Stimulus Act”. At the same time, however, nearly all of these direct mail pieces had a disclaimer in the fine print that indicated that they are “not affiliated with or endorsed by any government agency”.

For the record and to clear up any confusion, we are not aware of any government sponsored program to assist consumers with credit card debt relief.

An interesting question that has come up is …

“How did these firms find out that I was
even having any financial challenges at all?”

The most likely way is they purchased your name and address from one of the major credit reporting agencies (i.e. Equifax, Experian and TransUnion). It’s completely legal for them to do this. If you’re a little surprised that information about you is for sale, here are the links where you can confirm it for yourself:

Equifax  /  Experian  /  TransUnion

Note:  We actually called these companies and did a little mystery shopping and asked if we could purchase a mailing list for people having financial difficulty such as drop in credit score, late payment history, etc. They said, ”Yes, no problem.”  

No one ever wants to file bankruptcy, that’s for sure. But if you’re having financial difficulties you owe it to yourself to educate yourself on the basics of bankruptcy because it might just end up being the best solution for you afterall.

Today I ran across an excellent resource that answers virtually any question you would want answered on the topic of personal bankruptcy. Some of the most common questions people have about bankruptcy are:

• What is the difference between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy?
• What is the difference between a Chapter 13 and a Chapter 11 bankruptcy?
• Can I file Chapter 7 and still keep my home?
• Will I ever be able to buy a house after I file for bankruptcy?
• Are some debts non-dischargeable?
• If I file bankruptcy, is my spouse required to file with me?
• What about my IRA/retirement account – will it be protected from creditors?

Here’s the link:

http://www.acclaimlegalservices.com/faqs

It’s entirely possible that you won’t need to file bankruptcy to solve your financial predicament. But before making your final decision I believe it’s wise to at least explore all of your options before proceeding.

Yesterday I got a call from someone saying that his credit card company just went into his checking account and cleaned him out. They took his money and gave no advance warning. He was flabbergasted and wanted to know if this was legal.

As much as I hate to say it, the answer is yes.

However, don’t get worried that you immediately have to move all of your money to a Swiss bank account. The circumstance that allowed this person’s credit card company to just go into his checking account with no prior warning is a somewhat unique situation that will probably not apply to most people. Let me explain.

What allowed the credit card company to just go into this person’s checking account is something called cross-collateralization. It means that if you have money in a checking or savings account and you have a credit card with that same bank then the bank can go into your checking account to satisfy a past due balance on your credit card because your checking account and credit card are under the “same roof”, so to speak. In other words, the money in your checking account is serving as collateral on your unpaid credit card balance.

HERE’S AN EXAMPLE

Let’s say you have two credit cards, one with Wells Fargo and one with Bank Of America. And let’s say you also have a checking account with Wells Fargo.

Now let’s say you lose your job and you are unable to make your monthly credit card payments to Wells Fargo and Bank Of America. Because you have a checking account with Wells Fargo, Wells Fargo could then automatically go into your checking account and help themselves to your money to satisfy the past due balance on your Wells Fargo credit card. Bank Of America, in this example, would not be able to touch the money in your Wells Fargo checking account.

It’s important to note that the bank would only go into your checking account and take your money if you had a *past due balance* on your credit card. If you’re current, you have nothing to worry about.

Now you know.

President Obama signed the Credit Card Accountability, Responsibility and Disclosure (CARD) Act on May 22, 2009, which provides a sweeping overhaul of how consumer credit is handled by credit card companies. The bill provides strong and reliable protections for consumers against what some have considered unfair and deceptive practices by certain financial institutions.

The new law will go into effect in about 9 months. Below are the key elements of the bill:

• Credit card companies must notify their customers in writing of any rate increase or any other significant change to the card agreement at least 45 days in advance of the change. No more sudden changes.
• Monthly billing statements will have to be mailed at least 21 days before payment is due. In addition, the new law ends the practice of shifting payment due dates.
• Monthly billing statements will be required to tell credit card holders how long it will take to pay off a balance and what it will cost in interest if they only make the minimum monthly payments.
• Bans arbitrary rate increases on existing balances and severely restricts retroactive rate increases due to late payment.  After the first year, however, the card issuer can raise the rate on future purchases with 45 days advance notice.
• Places limits on fees and penalty interest.
• Every credit card company will have to post its credit card agreements online.

President Obama summarized these new changes by saying, “We’re not going to give people a free pass; we expect consumers to live within their means and pay what they owe.  But we also expect financial institutions to act with the same sense of responsibility.”

For more in-depth information on this new bill, please visit:

http://www.whitehouse.gov/blog/A-New-Era-for-Credit-Cards/

http://www.creditcardreform.org/learn.html

http://www.creditcardreform.org/pdf/dodd-summary-509.pdf