August 30th, 2010

How to Steer Clear of Car Loan Scams

As consumers continue to struggle under the weight of a lagging economy, many Americans are trying to refinance their car loans.

Unfortunately, scammers have taken notice and are increasingly trying to bilk people of their hard earned cash. According to Rosemary Shahan, the president of Consumers for Auto Reliability and Safety, car loan scams are a “problem just about everywhere.”

Shahan recognizes that many people are able to refinance their car loans, but warns that “the way to do it isn’t to go to these companies who are out there advertising, ‘We can miraculously get you out of this excruciatingly bad deal.”

A recent article from MarketWatch provides some tips aimed at helping you avoid car loan scams:

  • Choose wisely: If you want to refinance your loan, don’t opt for a group that heavily advertises its miraculous refinancing abilities. Instead, choose a safer organization, like a credit union or nonprofits like the Consumer Federation of America, or the National Foundation for Credit Counseling.
  • Speak with your lender: Since no lender wants to go unpaid, they are often willing to work with you to adjust your payment plan. According to the Better Business Bureau, lenders will often assist you by stretching your payments over a longer period of time.
  • Get it on paper: If a loan reduction company offers you any promises, make sure to get them in writing. Other things to get in writing include the services they will provide, the costs of those services, and promised money-back guarantees.
  • Do your homework: Your local Better Business Bureau likely offers reports that reveal how many complaints have been filed against a particular lender and whether that company has been the subject of any lawsuits.
  • Shy away from up-front fees: If a company demands that you pay large fees before they provide any services, they may be violating state law. Many states have outlawed this kind of behavior. Even if up-front fees are legal in your state, the practice could still be a scam.

An Alternative to Refinancing

If you cannot make your car payments, but are reluctant to adjust the terms of your loan, there are alternative steps you can take to ease your financial pain.

One helpful alternative may be to simply sell your car. Sources indicate that use-car prices are pretty high right now since last year’s cash-for-clunkers program removed a lot of used cars from the market.

So, you may be able to sell your current car and purchase a cheaper one with more reasonable payment terms.

If, however, your car loan is the least of your financial problems, and you need someone to talk to about your struggles, consider calling a personal bankruptcy lawyer.

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August 27th, 2010

Debt after Death: What Happens when a Debtor Dies

What happens to your debt after you die is not a topic that’s likely to come up on its own at the dinner table, but it’s a good idea to talk about this matter anyway. It’s important for you and your loved ones to know when you’re responsible for each other’s debts post-mortem—and when you’re not.

A recent post from WalletPop.com offers an outline of what to expect after the death of a family member who owed money. Here’s a summary.

  • Can debt be inherited? In most cases, debt does not automatically pass from one family member to the next, according to sources. That means that, if you receive a letter from a creditor demanding payment on a loved one’s debt after his demise, it’s a good idea to do some research before paying.
  • Debt in community property states: One of the exceptions to the above rule has to do with state law. If you live in a community property state (find out here), you can inherit debt from a dead spouse (but not from a sibling or parent).
  • The link between debt & inheritance: Another exception involves the relationship between a person’s debts and her legacy. If, for example, a parent dies and leaves you money or a house in addition to consumer debt, you’re legally obligated to pay the debt before collecting the inheritance.
  • What about debt from a co-signed loan? If you co-signed a loan for a family member or friend and that person passes away, you are responsible for paying the remainder of the loan.

How to Know if You’re Responsible for a Debt

One unfortunate truth about debt and death is that some creditors might try to collect on a debt whether or not it’s legal for them to do so. Worse, some scam artists may specifically target survivors in an attempt to trick them into paying money they don’t really owe.

If you’re mourning a loved one, the last thing you likely want to deal with is finances, but following these guidelines might help protect you from fraudsters:

  • Avoid sending a creditor any money at all until you’re sure that you are actually responsible for repaying a debt.
  • To determine your obligations, ask the creditor to send you written documentation of the debt’s original purpose, the terms of the debt and the exact amount currently owed.
  • If possible, consult an attorney to help you work through the complexities of covering debt’s after a loved one’s demise.
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August 24th, 2010

Study: Credit Card Application Disclosures Improving

Here’s some good news from the world of credit: according to a study conducted by the web site CardHub.com, the language on applications for credit cards has improved in clarity in recent years. Specifically, the transparency and completeness of disclosure of a credit card’s terms in the large print has gotten better.

The study looked at several elements of a credit card agreement, including these:

  • Clarity on rewards: This category rated how easy it was to interpret and apply rewards points.
  • Clarity on annual fee: Here, the study looked at whether issuers displayed the annual fee prominently or hid it among other pricing details.
  • Clarity on cost of carrying a balance for new purchases: This section looked at the clarity of introductory interest rates and APRs for new purchases made with the card (i.e. not balance transfers).
  • Clarity on cost of making a balance transfer: Here, the study examined the ease of finding how much it would cost to transfer balances from one credit card to another.

The study based its clarity ratings on whether or not the researchers had to click to various pages before finding the information they wanted, whether they had to sift through fine print and whether information was clearly visible on the page.

The Findings

If you’re interested in applying for a new credit card, the study may be worth checking out, as it includes detailed scores for cards put out by the top ten issuers in the U.S. Overall, the study found these trends:

  • Transparency is improving on annual fee disclosure: Whether because of new regulations introduced by the Credit CARD Act or other motivations, it seems that most card issuers have improved the clarity with which they explain the annual fees associated with their cards. Annual fees have apparently become more popular since the passage of the CARD Act, which limits overdraft fees.
  • Transparency is still poor for balance transfers: One area in which many cards reportedly need improvement is information about transferring balances from one credit card to another. While balance transfers can be used to lower interest rates and thus help pay down debt, they often come with fees and unclear terms, which can make them more trouble than they’re worth.
  • Cash-based rewards are easiest to understand: Another area where card issuers fell short of the transparency mark was on disclosing how rewards points and miles work and what exactly they’re worth. Because of this lack of clarity, the researchers recommend cash-back rewards as the most effective kind to use.

What might all of this mean? Hopefully, it will mean people are better informed about using their credit cards and able to manage their finances more effectively—and possibly reverse the trend of unmanageable credit card debt and filing bankruptcy that the country has seen for decades.

Additional Resources

The Credit CARD Act of 2009

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August 23rd, 2010

Dealing with Debt Collectors: What Not to Do

As the Great Recession continues to take its toll on the economy and employment landscape, millions of Americans are finding themselves struggling to manage and eliminate their debt. But that’s rarely an easy task, especially during high-stress interactions like contact from a debt collector.

It’s important to remember that, even though you owe someone money, you still have rights: you can and should expect to be treated respectfully by collectors and, no matter how much pressure one puts on you, there are a few things that analysts suggest you should avoid.

Here’s a look at some of those no-nos, adapted from this article:

  • Sending a post-dated check: While it may be tempting to get a debt collector off your back by sending a post-dated check to cover what you owe, sources indicate that it’s generally not a good idea. Why? Some collectors, it seems, have been known to deposit such checks early, and most banks permit them to do so. This could leave you with bounced check fees and other unpleasant matters to deal with if you don’t have sufficient funds in your account.
  • Divulging your bank account number: No matter how much money you owe, debt collectors are not legally entitled to your bank account number or other sensitive financial data. Even if you decide to make regular payments from a certain account, opt for a money order or a cashier’s check from a bank other than your own. If you’ve already given out an account number, keep a careful eye on the activity in that account and be prepared to challenge any withdrawals you haven’t approved.
  • Indicating that you’ll be applying for a loan: Sometimes, before applying for a loan, consumers attempt to clean up their credit reports by paying old debts and trying to get rid of other negative information. But letting a collector know what your goals are can work against you—instead, if you choose to contact a creditor, ask him to verify a debt in writing. Then, ask for written proof that he will remove the negative information from your credit report after you’ve paid; once you receive that proof, you can repay the debt.

The difficult economy has meant that more Americans than ever are struggling with day-to-day expenses, and the FTC noted that complaints about debt collectors rose by 12 percent in 2009 and outnumbered all other complaint types.

For a more detailed look at what you can expect, check out this page on your consumer rights with debt collectors. Further, know that debt collectors cannot legally contact you:

  • To collect debts whose statute of limitations has passed;
  • To collect debts that have been discharged in bankruptcy; or
  • To collect debts while bankruptcy’s automatic stay is in place.
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August 22nd, 2010

Student Loan Debt Tops Credit Card Debt in U.S.

The Wall Street Journal reported this month that the amount of money Americans owe on student loans has officially surpassed what we they owe on credit cards.

How did student loan debt come to outweigh credit card debt, which seems to dominate the headlines and personal finance blogs?

Here’s a look at the numbers behind the scenes:

  • Americans currently owe $826.5 billion in revolving credit  -essentially means credit card debt. This is actually down from a high of $975.7 billion two years ago.
  • Current educational debt - student loans - comes to $829.9 billion. Analysts estimate that More than  $300 billion of that was accrued in the last four years.

These numbers suggest a variety of explanations and ramifications. Here’s a look at some of the issues and likely outcomes of the new balance of personal debt.

  • Paying down debt: Because credit card debts tend to have higher interest rates than student loan debt, it seems that people tend to pay off their credit cards before worrying about their student loans. That could be part of the reason why student debt has crept up in recent years while credit card debt has inched down.
  • New credit card requirements: Another potential explanation for the shift is that many credit card issuers have increased minimum payments in recent months, which translates to people paying down more of their debt, whether they like it or not.
  • Attention: Credit card debt generally gets more media attention than student loans, which may make paying it off a bigger priority for some people.
  • Rising cost of college: The cost of attending college continues to rise. And with graduates entering a tough job market many are finding it difficult to pay down large student loan debts.

Bankruptcy and Student Loan Debt

One especially interesting element of the shifted debt load is the role that personal bankruptcy has to play.

Bankruptcy filing rates are on the rise, and the use of bankruptcy as a credit card debt elimination tool has become more common and accepted. However, bankruptcy cannot typically clear student loan debts.

  • Student loans in bankruptcy: Except in cases of extreme financial hardship, student loans are not dischargeable in bankruptcy court. This means that even if a person files for bankruptcy and has other loans discharged she will still be responsible for paying her educational lenders.
  • Credit cards in bankruptcy: Credit cards, on the other hand, can be discharged during a bankruptcy filing. With a Chapter 7 bankruptcy, some people clear their credit card debt in only a few months.

So what does all this mean for you? If you’ve found yourself saddled with student debt, credit card debt or both, it’s important to consider all of your options for easing your debt burden.

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August 20th, 2010

Jobless Numbers Rise Unexpectedly in Early August

The Department of Labor reported last week that initial unemployment claims for the week ending August 7 rose 2,000 from the previous week, to 484,000. This rise was apparently unexpected, and marks the highest rate since February of this year.

The news sent stock markets tumbling earlier this week as job growth remains frigid.

Here’s a closer look at the latest numbers from the Labor Department and what they mean:

  • Initial claims rose to 484,000 from 482,000, meaning the unemployment rate will likely hold steady at 9.5 percent.
  • The four-week floating average, which includes more data and so offers a check for highly volatile fluctuations, also rose to 473,500 – an increase of 14,250.
  • The average year-to-date number of insured unemployed people in the United States was 5.018 million.

And, while extended unemployment benefits were available to people in many states, some analysts are reportedly growing nervous about the implications of such persistently high job loss numbers. In fact, some seem to be worried that the country is locked into a self-perpetuating cycle of unemployment and a weak economy:

  • Many business owners and those responsible for hiring new employees are reluctant to do so because of fears that the recession isn’t over yet: They’re reluctant to commit to increased spending because they’re worried that they won’t be able to pull in enough revenue to justify long-term hires.
  • Many individuals, worried about losing their jobs or dealing with reduced hours, are also “hunkering down” by spending less money, taking out fewer loans and focusing on saving more.
  • Without adequate consumer purchases, some retailers are struggling to pull in enough income to stay afloat or grow. This means that they’re refraining from expanding or making new hires.

The problem is complex and involves all sectors of the economy and now, some analysts are suggesting that the recession will either end up having a “double dip” - meaning we’ll plunge back into recession after a brief period of economic growth - or that the first period of recession never actually ended.

So what can you expect in the coming months? It doesn’t look like any significant changes are on their way in the near future, which could mean:

  • Housing market struggles: Many people are still facing foreclosure, underwater mortgages and bankruptcy. So anyone looking to sell, build or buy a house may face difficulties.
  • Credit remains tight: Unless you have a squeaky-clean credit report history, you may not qualify for attractive loan terms while the recession slogs on.
  • Income options are limited: While jobless numbers remain high, you may have trouble finding additional income, which can be frustrating if you’re trying to pay down debt.
  • Saving matters: Whether you’re just beginning to save or working on a hefty nest-egg, now is not the time to blow it – you might need it for tough times ahead.
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August 18th, 2010

Back to School Doesn’t Have to Break the Bank

Each year, retailers and shoppers alike anticipate back to school sales with the intense focus of a professional athlete. This focus is a result of the high stakes of the event, as reports show the average family of four spends almost $600 getting their children prepared for school.

Even worse, the weakened state of the American economy has heightened the anxiety with which consumers approach late summer shopping. Fortunately, there are ways ensure that you don’t have to break the bank while shopping for school necessities.

To help frustrated consumers, the Sacramento Bee recently provided some wise strategies to carefully budget your school shopping.

Take Your Time

Don’t feel pressured to buy every single item your child needs before the first day of school. There may be some supplies you can buy later at a reduced price, as stores look to unload their excess inventory. Ask your child’s teacher which supplies can be purchased at a later date.

In addition, you don’t need to buy all your child’s clothes before school starts. According to the article, many fall clothes go on sale in October as stores clear their shelves for the holiday rush. This also gives your kids a chance to make crucial fashion decisions at their own pace.

Coupon, Coupon, Coupon

It sounds simple, but coupons can help you shave substantially costs off your back to school shopping. Many Americans are now reducing their debt by actively seeking coupons to use when they shop for basic necessities.

Today, with the aid of the Internet, finding coupons has never been easier. Some helpful coupon websites include CurrentCodes.com, dealcoupon.com, Becentsable.com, and Retailmenot.com.

Check Your Supplies First

Before rushing headfirst into new purchases, check your closets and cabinets for supplies that may save you the cost and hassle of making new buys. If you have enough old binders and pencils for a small army, recycle those instead of buying new items that will add to the clutter.

This strategy also applies to clothes, but may be less helpful since children grow out of old garb so fast. Fortunately, no one outgrows pencils and pens.

Make a Budget

Set a detailed budget before heading to the mall, and stick to it. Also, don’t be afraid of sharing this budget with your children. By creating a set budget, and meeting its limits, you will be able to protect your wallet while giving your children an important lesson in the benefits of sound financial planning.

Plus, by turning your search for school supplies into an opportunity to improve your children’s financial literacy, you will be giving them a valuable education well before the first school bell rings.

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August 17th, 2010

Families Struggle with Skyrocketing College Costs

If you think college costs are on a rapid ascent, recent statistics released by Sallie Mae and Gallup support your belief. According to reports, the average cost of college attendance rose a staggering 17 percent in 2010.

Just how much are costs rising? Sources indicate that the average costs of college attendance increased roughly 30 percent for families making between $100,000 and $150,000. In addition, those in the $35,000 to $100,000 income bracket experienced a 20 percent jump in college costs.

In order to pay college tuitions, parents and students are borrowing an increasing amount of money, as well as using more of their personal income.

How are Students Paying for College?

The survey revealed some interesting figures on how Americans are paying for
college:

  • In order to pay for school, 73 percent of Americans say they have reduced other spending, 48 percent have increased their hours at work, and 43 percent of families say their student has lived at home in order to reduce housing costs.
  • According to the report, which polled more than 1,600 parents and students, parents paid for 37 percent of the total cost of college attendance. Of this total, 10 percent was through loans, and the rest was given from current income.
  • On the other side, loans secured by students covered 14 percent of the cost of college, and student income and savings accounted for 9 percent of spending.
  • The second largest source of college payment came from grants and scholarships, which accounted for 23 percent of overall college funding.

These numbers show that most families have to dip into numerous sources to cover the cost of higher education.

Consequences for Personal Finances

The statistics above show how college costs are apportioned among various parties. What they don’t reveal is the impact rising costs have had on the personal finances of both parents and students.

  • Last year, the average amount of money parents paid from their personal income and savings rose 26 percent to $8,752, up from the previous year’s total of $6,934.
  • Further, while the average amount parents took out in college loans this year rose 27 percent to $2,261, up from $1,775 in 2009.
  • The amount of income and savings students had to use for college costs jumped 16 percent to an average of $2,314.
  • Student loan borrowing jumped 25 percent to an average figure of $3,396.
    In order to secure financial aid, experts advise that all families should fill out a Free Application for Student Aid form each year. Surprisingly, 13 percent of families were not aware of this form, according to the survey.

If college costs have sunk your personal finances, filing bankruptcy may help you recover from collegiate sticker shock.

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August 16th, 2010

CARD Act Review: Debit Card Rules

The Credit CARD Act, passed last year, will take full effect later this month (August 22), so there’s no better time to review the changes you can expect to see when that deadline arrives. Here’s what to look out for from your debit card and bank.

The New Normal: No Overdraft Coverage

Thanks to provisions in the CARD Act, banks must now offer overdraft protection (also known as abusive overdraft loans) to consumers on an opt-in basis, meaning that you won’t get this “service” unless you specifically sign up for it. Specifically:

  • Old way = Over-limit purchases go through, cost money. Before the new restrictions, most banks charged overdraft fees automatically for transactions that exceeded a customer’s limit. A customer could easily rack up hundreds of dollars in fees in a single day without realizing it, because every over-limit purchase would trigger a separate fee.
  • New way = Customers choose what protection they want. Now, you can decide whether or not you want banks to “cover” you on over-limit purchases and hit you with a fee for that “service.” For many customers, it makes more sense to have a transaction declined and avoid the fee.

But, as this Consumerist.com article points out, some banks are pushing hard for consumers to sign up for overdraft protection—and it’s no wonder, since banks make billions of dollars in fees from such “services.”

So how can you avoid paying fees for a service you may not want? Try these tips, which can help you keep track of your money (and avoid costly overdraft loans).

  • Carry some cash: Some analysts suggest paying cash for any purchase under $10. That way, even if you opt in to overdraft protection, you won’t get dinged with a hefty fee for a tiny purchase.
  • Pay with your credit card: If you’re not the cash-toting type, choose credit instead of debit. But treat your credit card like a debit card—pay the balance in full each month, or you’ll end up paying so much in interest any overdraft savings might be canceled out.
  • Know the loopholes: The overdraft protection opt-in does not apply to all transactions—checks and recurring debit card deductions (like automatic bill payments) may still be subject to overdraft fees, depending on your bank’s policy. If you aren’t sure what that policy is, call your bank’s customer service department to find out.
  • Keep track of your account: Whether you use a checkbook registry or log on to view your account information online daily, perhaps the best way to make sure you don’t go over your limits is to keep tabs on your money so you don’t forget about purchases and spend money you don’t actually have.

For a more detailed look at the new debit card rules, check out the Federal Reserve’s summary.

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August 14th, 2010

Protect Your Money and Credit: Scams to Watch For

The ever-evolving technology that makes our lives easier and more fun has a flip side: it gives the “bad guys” and endless stream of options for tricking us out of our hard-earned money, racking up debts on our accounts and even stealing our identities.

Here’s a look at some of the latest scams that can pose a threat to your money and identity, adapted from this post from WalletPop.com.

  • Infant Identity Theft: This dastardly scam involves stealing the Social Security numbers of children and selling them to people. Once these people have “bought” the “clean” numbers, they can then run up debts they might have no intention of paying back, which can mean serious trouble for the children down the road. The most frightening part? It’s possible that nobody would discover the scam for years: when the child applies for a driver’s license, when the parents open a savings account for him or when he applies for college (more information here).
  • Fake Timeshare Relief: As many financially struggling Americans look for ways to shed debts, many have sought to unload their timeshare properties. Unfortunately, scammers have caught on to the trend and are reportedly posing as sales agents, demanding upfront fees to help sell the homes, and running away with the money without offering any real help. As with other types of scams, proceed with caution any time a seller approaches you and/or demands payment before performing services (more information here).
  • Phony Online Car Sales: This scam advertises used cars at steep discounts, claiming that the vehicles have been repossessed to explain the low prices. Interested buyers are prompted to wire part of the purchase price up front and send the remainder when the car is delivered a few days later—but, of course, the car never is delivered, because the whole thing is a scam. This one can be especially deceptive because scammers apparently use information from the web sites of legitimate auto dealers to make themselves look more credible.
  • Busy Phone Lines: If you begin to notice that your phone lines are inexplicably busy (with dead air, prerecorded messages or similar), you could be the victim of a scam. It works like this: fraudsters collect personal information (such as bank account numbers, passwords or other sensitive info), usually by trolling social networking sites, using phishing emails or calling your number and posing as someone else. Then, they tie up your line and drain your accounts of money by asking for transfers or other transactions—usually the bank calls to verify such activity, but it cannot when your phone is busy. In some cases, the scammers even call the banks pretending to be their victims and ask for the transactions to go through. By the time you realize what has happened, it can be too late, so take a tied-up phone seriously—get to a free line and call your bank and credit card issuers!

For more details about these scams and how to protect yourself and your money, visit the FTC’s web site and check out the consumer protection information.

Additional Resources

Online Software Scams

Recognizing and Avoiding Email Scams

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