Archive for January, 2011

Monday, January 31st, 2011

Keep Your Debt Elimination Motivation High

Whether you’ve committed to a Chapter 13 bankruptcy repayment plan or you're paying off debt without help from the bankruptcy court, it's essential that you stay with your plan over the long term – otherwise, you may never get to the payoff of being debt free.

But, because eliminating debt and rebuilding credit can take several years (a Chapter 13 bankruptcy takes three to five years), staying motivated to pay down your debt can be a challenge all its own.

Here are some tips for keeping yourself excited for your mission, adapted from NotMadeofMoney.com.

Stay Pumped to Pay Debt: Break the Whole into Sections

  • Work piece by piece: Rather than thinking of your debt in terms of its overwhelming total number, break it into pieces of debt (whether by account, type of debt or some other groups) and focus on eliminating one type at a time. This should keep you from feeling helpless in the face of a large debt total.
  • Take time to celebrate small victories: When you meet one of your small financial goals (which can be anything from paying off a certain debt to avoiding some type of costly, detrimental financial behavior) for a set time period, reward yourself and enjoy the reward. Obviously, it's important not to go overboard on this (and risk undoing all the good you've done), but treating yourself to, say, one fancy latte per month will likely help you enjoy that drink much more than if you gulp one every morning.
  • Think debt by debt: Most insiders suggest paying the minimum balance on all but one debt (either the one with the highest interest rate, for maximum efficiency, or with the lowest balance, for speedy elimination) and funneling the rest of your spare change into that debt. This way, you'll pick off debts one by one as your work your way down to a debt-free life.
  • Remember your long-term goal: Eliminating debt can provide you with financial freedom that you might use in a number of ways – remember to keep in mind what you plan to do once you're unyoked from your debts. Whether you want to travel, give more, work less or do something else, remember that your journey toward debt elimination will help you get there.
  • Enlist a helper: Whether you're working toward financial freedom with a spouse or on your own, having an outside source of motivation can be helpful to keeping you on track. We tend to feel more responsible for our actions when someone is holding us accountable for them, for one thing; for another, it's nice to hear how well we're doing from someone else's mouth once in a while. So if you don't already have a debt-elimination buddy, start thinking about who might best motivate you to stay on track.
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Wednesday, January 26th, 2011

Avoid Refund Anticipation Loans this Tax Season!

If you’re counting on a tax refund this year, you may have heard of refund anticipation loans (or RALs), which some tax-preparation services offer to people as part of tax preparation services. But these loans, as most consumer advocates will agree, are not a good deal for you the consumer.

Here’s a look at why tax refund anticipation loans (sometimes called a refund anticipation check) may not be all that they're promised, and what the federal government is doing to help you avoid them.

Why RALs Are a Bad Financial Move

So what is a refund anticipation loan? Basically:

  • It’s a cash advance loan that charges you a high interest rate to get some of your tax return dollars earlier than you would have otherwise gotten them.
  • Some tax preparation services offer them to customers who are expecting a tax return that year. Generally, a customer can receive the money for a “fee” of some kind – just like a payday loan. In fact, RALs are very much akin to payday loans: their “fees” are just high interest rates disguised to look harmless.
  • RALs eat into whatever tax return you can expect to get. After all, you have to pay for the privilege of receiving your money early, and that money comes out of whatever you would have received from the federal government.
  • RALs can also set you up for debt. What happens if there’s a mistake in your tax forms or if you end up getting a smaller return than you expected? If you take out a refund anticipation loan for the full amount of your return and then receive a smaller actual return from the government, you’ll still be responsible fore repaying the loan amount in full. Yikes.
  • RALs may present a tempting prospect to unbanked Americans – after all, if you don’t have a bank account, waiting for a refund check from the government and then paying to have it cashed can seem like a waste of time and money. But paying for the RAL itself will almost always cost more.

So What Are the Feds Doing about the RAL Problem?

This year, the Treasury is launching a new program that offers an alternative to refund anticipation loans, particularly aimed at people without bank accounts who might be susceptible to the RAL’s siren song. Here are the gist:

  • Debit card distribution: The Treasury will be sending debit cards pre-loaded with people’s refunds to 600,000 Americans selected at random to participate.
  • Experiment to see what works: If the program proves popular, the pre-loaded debit card system could become standard practice in future years.
  • Varied terms on cards: In order to test various features, the debit cards will come with a variety of features. Some will require no fees to make purchases or withdraw money from ATMs, while others will charge small fees to be activated, check balances or use at certain retailers.

The goal of this program, it seems, is to offer a lower-cost alternative to RALs and RACs to the people most likely to be tempted to choose them.

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The Federal Trade Commission recently published tips to help Americans get the most out of their vehicle warranties. The guidelines are fairly simple, but could make a huge difference to your car (and your wallet) should your car need repairs.

And for anyone recovering from bankruptcy or otherwise trying to maintain healthy finances and eliminate debt, these tips should be welcome.

Know What the Warranty Protects

Here’s something that many consumers don’t know about auto warranties:

  • Federal law protects consumers: In fact, it’s illegal for an auto dealer to deny service outlined in a warranty simply because a you had your car serviced by an independent mechanic.
  • The dealer has to offer proof: In order to deny warranty-covered services, a dealer must be able to prove that specific work done on the car caused the damage that you want repaired. And then, only the part damaged by the independent mechanic can be denied warranty services – the rest of the car is still protected.

Make the Most of Your Car’s Warranty

The FTC recommends taking the following steps to make sure your car can get the service and attention it needs and is legally granted by its warranty.

  • Read your warranty or your car’s owner’s manual: In order to take advantage of the terms of service, you have to know what they are, right? So make sure to take the time to look over what is guaranteed in your vehicle – you may even be pleasantly surprised.
  • Keep a note of the end of the warranty period: It’s not “cheating” to have any problems or issues looked at by your dealer right before the end of your warranty. In fact, that’s a smart move: why not get any updates or repairs done for free while you still can?
  • Take regular care of your car: Make sure to follow the guidelines listed in the owner’s manual for maintaining your car. This means changing the oil and air filters, having tires rotated, and getting any strange noises checked out as they occur. This may cost more in the short term than ignoring your car or letting things slide, but better maintenance will mean better longevity (which means you won’t have to pay for a whole new car for longer).
  • Keep your receipts: It’s a good idea to have a file (whether digital or hard) of all the maintenance and repair work you get done. That way, you can use the receipts as evidence that you maintained your car properly if and when you need to take it in to the dealer to have it repaired under warranty.
  • Make some noise: If a dealer refuses warranty-guaranteed service on your car, speak to a manager or another dealership. Consider filing a complaint with your state’s attorney general. The federal government outlines certain rights for consumers regarding their cars and auto warranties, so why not take advantage of those?
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A recent report from CreditBloggers indicates that the Consumer Financial Protection Bureau (CFPB), the new government body created by the Obama administration to improve consumer protections in the United States, plans to create an easy-to-understand tool that will allow potential homeowners to compare the terms of various mortgage loans with greater ease.

Here’s a look at some of the details.

Easier-to-Understand Mortgage Documents and More

  • More transparency in lending: According to a press release from the CFPB, the organization plans to join forces with state enforcers and banks to improve transparency in lending tools such as mortgage documents, student loans and payday loans. The goal of this partnership is to better equip consumers with the tools needed to understand loans before they take on such burdens.
  • Clarification of mortgage options: One of the CFPB’s specific goals is to provide consumers with an easy-to-understand comparison sheet for mortgage loans. The current forms, apparently, include too much legal and technical jargon and provide little illumination for the average consumer.

So what might this mean for consumers, once the CFPB produces documents to facilitate various borrowing experiences?

Improved Understanding of Consumer Risk

The goal, it seems, is to put consumers in a position of power when they’re making decisions about their finances. Ultimately, services from the CFPB might include:

  • Better disclosures on student lending forms: Most student loans are not dischargeable in bankruptcy, but students continue to regularly take on tens and even hundreds of thousands of dollars in debt in order to get a bachelor’s degree. Improved disclosures, explanations and estimates post-graduation earnings could help young students make more reasonable borrowing decisions.
  • Tighter restrictions (or clearer terms) at payday loan stores: While some state laws have banned or greatly restricted the practice of payday lending, in much of the country payday lenders still thrive. The CFPB has announced that it plans to play a role in changing the face of payday lending so that it is less alluring and expensive for already struggling consumers.
  • Clearer comparisons of mortgage offers: As stated above, more direct methods of explaining and comparing mortgages could potentially save consumers from taking on toxic debt.

Because the financial turmoil we’ve been dealing with for the last few years has had unarguably negative effects on the lives and livelihoods of millions of citizens, it’s refreshing to see the potential for some good (in the form of increased consumer protections) to come out of the bad.

The CFPB is still a fairly new organization; as it matures and extends its reach, it should be making important changes for consumers across the country.

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Monday, January 17th, 2011

2011 may Be a Record Year for Foreclosures

Much has been written in the last few years about the foreclosure crisis that took hold once the housing bubble burst. And, according to the Associated Press, this year will not offer any relief – in fact, sources suggest, 2011 looks like it could see even more foreclosures than 2010 did.

1.2 Million Foreclosures Predicted for 2011

So why are news outlets and industry insiders predicting that 2011 will have more mortgage foreclosures than any year we’ve seen? A number of factors are apparently contributing:

  • High unemployment: While the national unemployment rate has declined slightly since its peak of just above 10 percent, it’s still much higher than normal and millions of Americans without work are or will soon be unable to keep up with their mortgage payments.
  • Plunging home values: Further, the crash of the housing market means that millions of homeowners are currently “under water” on their mortgages – in other words, they owe more than the home’s value and so have little incentive to pay their loans back.
  • Delayed foreclosures last year: Another spur for 2011’s foreclosure season is the delays in foreclosure processing that happened at the end of last year: in addition to ordinary holiday moratoria on foreclosure proceedings, the robo-signing scandal halted foreclosures on many properties around the country. Those foreclosures that were delayed may now proceed normally.

A Look at the Numbers

So just how bad is the foreclosure crisis expected to get this year? The numbers provided by news outlets paint a pretty bleak picture:

  • A reported five million borrowers are currently behind on payments by at least two months; without serious change in the employment scene, that number is likely to increase.
  • It seems that as many as 2.9 million (that’s one in every 45) U.S. houses were in some stage of the foreclosure process last year. This could mean that the homeowners simply received notice of default or that the foreclosure actually took place.
  • Apparently, five states are responsible for the bulk of foreclosures around the country, and insiders expect the pain to worsen in these areas: California, Arizona, Florida, Michigan and Illinois have reportedly accounted for about 1.5 million of the foreclosure notices received last year.

An End in Sight?

One source quoted in the Associated Press article seems to think that 2011 will show the “peak” of foreclosure filings in the U.S., which could be taken for either a good sign or a bad sign – 2009 and 2010 both set records for foreclosure volume.

And is there any hope if your home is nearing foreclosure? You may still be able to benefit from the protection of Chapter 13 bankruptcy (ask a lawyer for details), or perhaps from lowered mortgage rates. But many banks, it seems, are still less than eager to offer refinancing deals.

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Wednesday, January 12th, 2011

What’s the Latest on Payday Loans?

In the last few years, lawmakers in many states have taken on payday loans as a pet cause, passing legislation that outlaws or severely limits what these predatory lending institutions can charge and how they can operate.

But a recent post at CreditBloggers points out that many payday lending operations are still thriving, for a number of reasons. Here’s a look at the latest payday lending landscape and a reminder of just how expensive these seemingly innocuous loans actually are.

Restrictions on Payday Lending

In recent years, state lawmakers have put a variety of limits on how payday loan stores can operate:

  • Ohio: State legislators limited payday lending interest rates to 28 percent (a significant decrease from the 400+ percent some lenders charge annually). The legislation affected the payday lenders, naturally, but apparently did not result in their flight from the state.
  • Montana: In November’s election, 72 percent of voters reportedly voted to make payday lending illegal in the state, and a new measure that went into effect on the first day of 2011 limits interest rates to 36 percent. The result, it seems, is that most payday loan stores have packed up and headed out, unable to make sufficient profit under those terms.
  • Arizona: When a law permitting high-interest lending was not renewed, sources note that some lenders remained in the state but one national chain (Advance America Cash Advance Centers) quit the state entirely.
  • Other states: Elsewhere in the country, legislation has been introduced and/or passed to limit the amount of interest payday lenders can charge and how they can operate their businesses.

So why, with so many restrictions in place and so much public energy devoted to eliminating payday lending abuses, are some payday lenders still thriving?

The Credit Crunch and Payday Lending

Unfortunately, one effect the recession has had on the lending landscape is that many lenders have tightened their lending standards. In fact, while the number of banks in the nation reportedly increased between 2007 and 2009, the dollar amount of loans they issued dropped by a staggering 51 percent.

What does that mean for ordinary consumers (and especially those whose credit is less than pristine)?

  • Fewer borrowing options: With banks holding onto their money more tightly, fewer consumers have a chance at getting loans from these mainstream, trustworthy sources.
  • Prime ground for alternative lenders: When people need money, though, they have to get it from somewhere. And, because of the way their business model works, payday lenders are often the go-to place for folks who can’t get loans elsewhere.
  • Serious danger for serious debt: Unfortunately, just because payday loans may seem like your only option does not mean that they’re any safer than they used to be. Payday loans can lead to a debilitating cycle of debt and can come with interest rates of more than 400 percent over the course of a year! Remember that many financial advisors recommend almost every other source of financing over payday loans.
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Monday, January 10th, 2011

Foreclosures Expected to Balloon this Month

Recent news reports have forecasted a significant increase in the rate of mortgage foreclosures across the country in the first month of 2011. According to NPR, the forces that held foreclosures in check for the final months of 2010 are no longer at play and this year should see foreclosures picking up with a vengeance.

Here’s a look at what’s happened so far in the foreclosure world and what you can expect in coming months.

The Sad Saga of U.S. Home Foreclosures

While many economic indicators suggest that we’re finally tugging ourselves out of the recession that’s gripped us for years now, the state of the housing market suggests otherwise. Here’s a look at why.

  • Robo-signing foreclosure scandal: In the last few months of 2010, a foreclosure scandal hit: it seems that, at many banks, the practice of “robo-signing” had become common for foreclosure paperwork. Lawyers questioned the legality of the practice and, in the meantime, hundreds of thousands of foreclosures were put on hold while the courts decided what to do.
  • End-of-year foreclosure stays: Following that scandal came the holidays, a time during which many banks and lenders traditionally put a hold on foreclosure processing.
  • Backlog of foreclosures in 2011: Now, of course, the holidays are over and the robo-signing cases have been more or less settled. And, according to NPR, as many as 100,000 homes could go into foreclosure by the end of January.
  • Even more homes on the market: Naturally, increased foreclosures are bad news for the families directly affected by them, but they’re also likely to be problematic for the already glutted housing market. And, with mortgage lending standards tightened and unemployment still above nine percent, the chances of other families buying those homes any time soon are slim.

Is there Any Hope for Foreclosure Relief?

If you’re worried about losing your home to foreclosure, now is the time to take action. Consider the following.

  • Visit a housing counselor: She can help you figure out what your options are and whether you can realistically catch up on your mortgage and stay in your home.
  • Speak with a lawyer: A local attorney can help you figure out whether or not Chapter 13 bankruptcy could provide you with sufficient means to halt foreclosure and work towards saving your home.
  • Consider rescission: Ask your lawyer about the right of rescission, which could help you keep your home if your lender originated the initial loan fraudulently.
  • Contact your lender: Whatever you decide to do, be sure to keep lines of communication between you and your lender open. While mortgage modifications may not always be an option, they can provide a realistic alternative when they’re practical.
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Wednesday, January 5th, 2011

What You Can Learn from 2010’s Top Scams

While many people are looking forward to the new year, it’s also important to take time to look back on what we learned from 2010. So here’s a review of some of the major scams that we saw in the past year and what you can do to protect your finances from similar ones.

Protect Your Finances from Future Scams

  • Mortgage Relief Scams: Scammers know that people who are feeling desperate make good targets, so times of economic distress provide scam artists with plenty of opportunities for ripping people off. Scams offering fake mortgage relief take advantage of people in danger of losing their homes by offering fake services to negotiate with lenders or change mortgage terms, and real opportunities for struggling homeowners to throw away money they can’t afford to lose. Lesson: You are the only one responsible for saving your home and/or mortgage. If you want help, you must ask for it and do some work to find the right group to provide it.
  • Debt Relief & Reduction Scams: Like mortgage relief scams, debt relief scams work by charging consumers steep upfront fees for debt-reduction services that the scammer never delivers. Though new rules have strengthened consumer protections against debt settlement companies (which are sometimes little more than dolled-up scammers), many groups are apparently still finding ways to get around these rules. Lesson: Do your homework before committing to any debt relief firm. Visit the Better Business Bureau, compare fees among companies, and consider your alternatives (like credit counseling and bankruptcy). Most importantly, if something sounds too good to be true, don’t believe it.
  • Robocall Scams: These scams work by contacting vast numbers of consumers with recorded telephone messages and promising some attractive service (like quick debt reduction) – naturally, for a steep price. Lesson: Getting out of debt is almost never a quick process. If someone promises a quick fix for your debt, turn the other way and run (and don’t write any checks in the meantime).
  • Identity Theft Scams: Identity theft is perhaps one of the most troubling crimes of the information age – correcting the damage done by identity thieves can take hours of time and lead to anger and frustration. And identity thieves are masters at taking advantage of new technologies to get our information – emails, text messages, online buying sites and other popular media have all been used by identity thieves to lure in unsuspecting consumers. Lesson: Guard your personal information carefully. Don’t ever wire money to strangers, reply to unfamiliar emails, text sensitive information or otherwise reveal too much of your personal data.

Keep Your Money Safe in 2011

The sad truth about scams is this: there will always be a new scam out there – the nature of legislation is that it is slow and retroactive, meaning that unscrupulous individuals will always be able to outpace laws. But if you approach your everyday transactions and interactions with reasonable skepticism, you should be able to keep yourself and your money safe.

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The Federal Reserve has proposed a troubling change that could all but eliminate one tool homeowners have to fight mortgage foreclosure, a recent post from Credit.com's blog highlights. The tool is called rescission. Here’s what it is and what might happen to it.

What Is Rescission?

Rescission is a process that more or less offers homeowners a chance to get out of a mortgage if they can prove it was fraudulently or deceptively originated. Specifically:

  • Deceptive & fraudulent mortgage lending: One phenomenon reported frequently during the subprime housing boom of a few years ago was lenders who allegedly lied about specific terms of mortgage loans (whether that meant concealing balloon payments, misrepresenting the nature of adjustable rate mortgages or something else), or encouraged borrowers to do so (usually by inflating their income level). Unsurprisingly, many borrowers who signed such mortgages ended up unable to make payments at some point.
  • Beginning of the foreclosure process: After a few months of failing to make mortgage payments, most homeowners will receive notice from their lenders of foreclosure proceedings. Naturally, this is not pleasant for anyone and can lead to serious stress and financial trouble for affected families.
  • Limited protections in Chapter 13 bankruptcy: While some homeowners are able to find relief from foreclosure proceedings in bankruptcy court, many others find that bankruptcy only addresses some of their problems – after all, the bankruptcy court cannot modify the terms of a mortgage loan.
  • Rescission’s foreclosure prevention: One of the few options available to many homeowners facing foreclosure, then, has been the process of rescission, which works like this: if a homeowner provides a written statement to his lender that his loan was originated fraudulently and can prove as much in court, the court may rule to cancel the terms of the current mortgage. The borrower can then take on a different loan from a different lender to repay the balance to the original creditor.

Essentially, the process of rescission allows homeowners to trade out fraudulent mortgage loans for more affordable, honestly originated ones.

The Fed’s Proposal to Change Rescission

But, as CreditBloggers reports, the Federal Reserve has proposed a change to the rescission laws that would require mortgage borrowers to repay the entirety of their fraudulent mortgage loans and only then challenge the loan’s legality.

As many consumer advocates have pointed out, this would remove much of the foreclosure-prevention potential the current rescission process offers and would prevent most ordinary homeowners from hanging on to their houses.

To learn more about the proposed rule change and the consumer advocates fighting against it, please visit the article linked to above. To learn more about your potential for relieving your mortgage debt with rescission, contact a debt-relief lawyer in your area.

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