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Monday, August 29th, 2011

New Research: Improve Your Finances by Avoiding Decision Fatigue

New research published recently in the New York Times provides a fascinating look at how our brains work when required to make important decisions. The findings could have serious implications for people trying to avoid debt, rebuild after bankruptcy, or stick to a budget.

What Is Decision Fatigue?

Decision fatigue is exactly what it sounds like: a phenomenon that occurs when a person has made too many choices. Intriguingly:

  • Each decision a person makes requires energy.
  • We all have limits to our mental energy, but we may not realize we’re approaching those limits.
  • As we make decisions throughout the day, our mental energy is depleted. It can be restored with rest and food.
  • Poor people are reportedly more susceptible to decision fatigue than rich people because those with less money generally have to put more energy into each purchasing decision they make. Having fewer resources means that every spending choice has higher stakes.
  • Decision fatigue can lead to impulse buying, overextending yourself on credit and otherwise making the sort of purchases you wouldn’t if you had your full mental reserves available.

We’re wired to deal with decision fatigue in two ways: by acting impulsively or by making no decision at all. Clearly, either of those options can have serious side effects, especially if debt is on the line.

How Can I Fight Decision Fatigue?

We have to make so many decisions each day, we may not realize we’re making them: what to wear, what to eat for breakfast, what to pack for lunch, which lane to drive in, where to park – and that’s before getting to work.

Researchers have found that there are some key ways to fight decision fatigue and maximize your effectiveness throughout the day:

  • Plan ahead: Set out your clothes, pack your lunch and decide on breakfast before bed. In the morning, you can breeze through without stressing about minor things.
  • Schedule major decisions: If you know you have to make important decisions (e.g. buy a car or lead a big meeting at work), plan ahead. Make sure to get enough rest beforehand and to approach the decision with a full stomach.
  • Space major decisions: While it may seem productive to schedule major decisions or projects close together, you’ll probably serve yourself better by giving your brain a break between them.
  • Have a snack on hand: One encouraging finding of the decision fatigue research was that there is a simple way to fight back: eat something. The rush of glucose to the blood and brain we get from eating can help rejuvenate our energy and make decisions a little less overwhelming.

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Wednesday, February 2nd, 2011

Spend Smarter to Save Time & Money

As anyone recovering from bankruptcy, trying to eliminate debt or otherwise reshaping their finances knows, shopping and buying new things can be a source of stress – after all, we all need stuff now and then (whether it's a new part for a car, a new refrigerator or new shoes for our kids). But we shouldn’t have to worry that our purchase will turn into a nightmare if something goes wrong.

A recent post from WalletPop.com outlines what it calls a “Customer Bill of Rights,” which offers suggestions for what ordinary consumers should look for in their purchasing to make sure they won’t be scammed or led into a labyrinth of red tape should something malfunction.

Know What to Look for in a Company

Here’s a summary of how to better navigate your spending and buying experiences.

  • Look for contact information. If a company doesn’t readily display contact information (with email addresses or phone numbers on a web site and actual representatives in a store), you may not want to shop there. After all, if you can’t easily communicate with the company, you’ll probably be in for some serious headaches if you want to ask about a return or repair policy down the road. Before you spend your money, make sure you know how to ask the vendor questions.
  • Know your timeframe. If the first person you speak with can’t help you resolve a problem, ask for a manager. It’s easy during customer service calls to get frustrated and give up, but remember that you spent your money on this company’s product, and you need help with it. Customer service reps shouldn’t act like this is a burden; if they do, you’ve learned one company not to buy from in the future.
  • Know the policies and ask about changes. Return and warranty policies change frequently at some retailers. Be sure to read such policies and ask how a company handles changes: if, for example, you buy something and the policy changes before you need it fixed, what will your options be?
  • Be wary about warranties. Many stores offer expensive warranty deals that are not worth your money. Instead, consider looking at online warranty vendors (like SquareTrade.com) or simply setting aside a fund for all your appliances – that way, you have somewhere to draw money from if you need repairs.
  • Do some homework. In an ideal world, we wouldn’t have to worry about whether a retailer would treat us respectfully if we needed to make a return, but in the real world some vendors have better reputations than others. A quick online search should yield lists of companies that have high and low ratings for their customer service. You can also look at forums where customers chat about their experiences.

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Wednesday, December 15th, 2010

Your Post-Bankruptcy To-Do List

If you’ve filed for bankruptcy, you’ve probably already heard a thing or two about how important it is to rebuild your credit. A recent post at CreditBloggers.com provides an excellent guide for how, precisely, a person can begin this daunting process.

Here’s a look at some of the key tips discussed on the post.

Know Where Your Credit Stands

If you haven’t already, now is the time to visit AnnualCreditReport.com and get a free credit report from each of the big three credit reporting bureaus (every American is entitled to one free credit report per year from each bureau). When you get the report:

  • Review all the information carefully: Accounts that were discharged in your bankruptcy filing should have a balance of zero dollars and indicate that the debt was forgiven in bankruptcy.
  • Look for mistakes: Check for any incorrectly reported information – this could include a report that you still owe money on an account that was discharged.
  • Contest the mistakes so they can be removed: If you notice any incorrectly reported information, contact the credit reporting bureau and identify the problem. You’ll probably be asked to send written documentation that you no longer owe the debt, but the process will be worth it because the less your credit report says you owe, the better off your credit will be.

Start to Make Credit Amends

Once you’ve figured out how your credit looks, it’s time to start engaging in the kind of behavior that will replenish your credit report with positive credit actions and thus make you look like a more attractive credit risk to potential future lenders.

One of the most important things to keep in mind while focusing on rebuilding your credit is to be wary of credit scams – they abound, and scammers often target people who have recently filed for bankruptcy. Here are some common scams to avoid:

  • Advance fee loan scams: This term covers a variety of scams, but for people trying to rebuild after bankruptcy, advance fee scams might involve someone posing as a lender and “guaranteeing” you a loan – if you agree to pay a fee in order to have that loan offered to you. If, in fact, you were able to get a loan and make regular payments on it, the loan would likely help you rebuild your credit. But if it’s an advance fee scam, what will likely happen is your loan will never materialize and the fee you pay will be gone forever.
  • Credit repair scams: These, too, are sadly common. They involve a company promising to “repair” or “wipe out” your credit record – even if the information on it is completely accurate. Of course, this is not legal to do and will end up costing you money that you’d be better off saving or putting toward real credit-building ventures.
  • New credit file scams: This variety of scam involves a company giving you a “new credit identity” – essentially, the company gives you an Employee Identification Number (EIN) to use with the credit bureaus in lieu of your Social Security Number. The claim is that you’d get to build credit from a clean slate, but the catch is that this is highly illegal and could lead to jail time and/or hefty fines. Plus, all the time you spend building your “new” credit identity is time in which your real credit identity just languishes.

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Posted in Finance 101: Secure Your Future, Your Credit Score | No Comments »

Monday, November 29th, 2010

Many Thriving after Bankruptcy

A recent article in the Wall Street Journal offers an interesting look at how a variety of American bankruptcy filers are doing in their post-bankruptcy lives. The findings are interesting and informative – and, if you’re among those who have filed for bankruptcy protection in recent years, they may save you some time and worry.

Here’s a look at some of the highlights of life after bankruptcy these days.

  • Credit checks & the job hunt: It seems that some people recovering from bankruptcy are finding that the job application process has an added difficulty: the credit check. While some states have made pre-employment credit checks illegal and the government prohibits public-sector employers from denying jobs on the basis of a bankruptcy filing, many private-sector companies are still running credit checks on applicants – and many apparently frown at bankruptcy filings.
  • Finding new housing after bankruptcy and foreclosure: Another hurdle many bankruptcy filers and foreclosure victims are reportedly facing is finding a place to live after their finances fall apart. While sources note that most people with bankruptcy and/or foreclosure in their past will have to work harder to find housing than someone with cleaner credit, it seems that many landlords are willing to take into account the circumstances surrounding a bankruptcy filing or foreclosure. In other words, if you were a victim of unexpected illness, injury or job loss (like so many bankruptcy filers), you stand a better chance of securing a new lease.
  • High auto loan interest rates: Many people have reportedly had great difficulty getting an affordable auto loan after a bankruptcy filing, especially in the current economy. Some people apparently choose to find housing close to their children’s schools and near public transportation; others managed to get high-interest loans on used vehicles and stay current.

General Tips for Life after Bankruptcy

The good news about recovering from bankruptcy in the current economy is that you are by no means alone, which means that more people are beginning to understand that bankruptcy provides, in some cases, the only viable option for people in financial distress.

Here are some general post-bankruptcy tips:

  • Make & keep a budget: Mindfulness is perhaps the most important part of staying within your means – it’s far too easy to overspend if you don’t know how much money you’ve got at your disposal.
  • Change your habits: Falling into your pre-bankruptcy financial habits will probably lead you back down the road to bankruptcy. So avoid payday lenders, pay off your credit cards each month and use cash if you can’t resist the urge to splurge on credit.
  • Make a cushion: Saving money is key to making sure another financial catastrophe doesn’t undo you again. Even a small emergency fund can mean the difference between disaster and stability.

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Tuesday, September 21st, 2010

Save Money on Your Car: Avoid these Scams

While owning a car is an indispensable part of many people’s lives (and often the main mode of transit to and from work), maintaining a car can put a real dent in the monthly budget. And, if you aren’t especially vehicle-savvy, you may run a further risk of being taken in by car-related scams.

A recent post from Bargaineering.com offers some insight on some of the worst and costliest car scams out there, which we all need to avoid, especially if we’re recovering from a bankruptcy filing. Here’s a summary.

Know What Your Car Needs…and Doesn’t Need

  • The engine shampoo: This service, which some unscrupulous mechanics have been known to offer, involves cleaning the outside of your engine. Admittedly, car engines get very dirty, what with all the work they do to keep your car moving. But, as those in the know realize, cleaning the engine doesn’t have a real impact on your car’s performance. What it does affect is your wallet – this scam can set you back a couple hundred dollars. A much better use for that money would be toward paying down debt.
  • The engine flush: This service does for the inside of the engine what the shampoo does for the outside. In some cases, this may be necessary (you’ll know you need a flush if you notice buildup under the oil cap). But, unless you’ve had your car for a while and have seen the oil cap buildup, opt out of the flushing service. If you have some money to spare, think about using it to start a savings (savings page) account.
  • Fuel injector cleaning: Again, unless your car has more than 100,000 miles on it, an offer to clean your fuel injectors is likely to be a waste of your money.
  • Gas saving gadgets: These have been blasted by Consumer Reports as money wasters. If you’re looking to spend less on gas, try driving within the speed limit, keeping the proper air pressure in your tires, braking gradually, losing extra weight in your vehicle and otherwise making sure your car is in good shape. If you’re really pinched for cash, try carpooling or switching to a bike a few times a week.

Car-Buying Scams

In addition to these maintenance scams, there have been reports of online scams targeting people interested in buying cars for a good price. One notorious scam claims to be selling repossessed cars for steep discounts. Know the warning signs:

  • A seller asks you to wire money.
  • A seller asks you to pay a significant portion of the price before you ever see the car.
  • The price seems too good to be true.

Cutting costs is essential to establishing financial health after a bankruptcy filing, but sometimes you need to pay more in order to get a reliable product.

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Saturday, July 10th, 2010

Credit Cards After Bankruptcy

After a bankruptcy filing, many people are reluctant to wade back into the world of credit, often because too much credit allowed them to build up the kind of debt that pushed them into filing for bankruptcy in the first place.

But, as many financial analysts note, rebuilding credit is an important part of recovering from personal bankruptcy. Here’s an outline of why and how to know if you’re ready to apply for a new credit card.

Credit after Bankruptcy?

Put simply, you need credit because in contemporary American life, your credit history plays a major role. Specifically:

  • Housing: Many landlords check a person’s credit report before determining whether to rent to her. Theoretically, because a credit report includes a history of payment of various debts, it can give a landlord an idea of what kind of renter you’ll be (i.e. whether or not you’ll pay rent on time).
  • Employment: It’s also common for employers to check the credit report of a potential employee. Some lawmakers are trying to see this practice changed, but for now you can expect a job application to include someone peeking at your credit report.
  • Loans: This is perhaps the most important reason to reestablish credit. Whenever you apply for a loan (whether it’s a credit card, a mortgage or something between), the lender will check your credit. The terms of your loan will generally be based in large part on your credit score and the information in your credit report. Those with a strong history of paying loans on time are decent risks for lenders and so can be offered lower interest rates. And the reverse is also true.

But having no credit history at all means that potential landlords, employers or lenders would have no way to gauge what kind of risk you’d be to them, and so might deny you whatever it is you want.

When to Apply for a Credit Card

This depends largely on you and your financial habits. The BankRate.com article suggests considering these factors:

  • How you’ll use it: The best way to use a credit card is to use it like cash. In other words, only buy with a card what you could afford with cash. That way, you can pay your bill in full at the end of each month. Cards grant you certain conveniences (like online shopping), not a license to spend.
  • Why you filed for bankruptcy: If something unexpected like a divorce, death, illness or job loss led you to file, consider saving up about two months’ expenses before applying for a card. That way, if another emergency crops up, you won’t be tempted to run up a balance on your card.
  • What card you’ll get: There are a lot of credit cards out there. Do plenty of research and find one that suits your needs. And if you can’t qualify for anything but cards with outlandish fees, wait a bit longer and try again.

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Posted in Your Credit Score | 1 Comment »

Tuesday, December 15th, 2009

Shakira: I Made It Because of Bankruptcy

In a recent report from CNNWorld, Columbian-born pop singer Shakira declares that her family’s bankruptcy when she was a child motivated her to become the successful, world-famous pop star she is today.

In addition to having recorded record-breaking number of worldwide hits and a wildly successful career as a musical entertainer, Shakira founded the Barefoot Foundation, a charity that helps promote and fund education for poor children in Columbia, where she grew up.

Bankruptcy as a New Beginning

In the article, Sharkia shares her family's experience with debt, including having to sell all of their furniture. However, her parents wanted their young daughter to know that bankruptcy wasn't the worst position to be in. Shakira’s experience provides one example about what bankruptcy can and cannot do.

  • It IS a chance to start over. Those of us who have or have had problems with debt don’t need to be shamed or scolded. We know we’ve messed up. Bankruptcy offers us a chance for to start from the beginning, without the onerous weight of debt holding us back.
  • It IS NOT a life ruiner. Bankruptcy doesn’t ruin people’s lives. It provides a solution to an overwhelming problem. Yes, your credit will be temporarily hurt by a bankruptcy filing. But it—and you—can recover, assuming you heed the advice in the financial management course and develop a new relationship with money and credit.
  • It IS a major step. Shakira tells of her parents' bankruptcy as a life-changing event. And for many people, it is. Filing bankruptcy means you have to admit you’re over your head in debt and you need help getting out. But it also means you’re ready to start again and learn from your mistakes.
  • It IS NOT a scarlet letter. As Shakira shows (as well as other celebs including Larry King, Cyndi Lauper, and Abraham Lincoln), bankruptcy does not brand you for life. In fact, if you’ve got the right attitude, it can provide motivation to improve your finances and strive to reach other goals, as well.

True, most of us won’t become Shakiras or Abe Lincolns. But the lesson here is valuable just the same: debt does not define us unless we let it. So, instead of looking at your financial difficulties as a dead end, see them as an opportunity to start over and reinvent yourself. I know it’s not easy, but it’s also not impossible.

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Friday, November 27th, 2009

True Bargains: What Makes a ‘Good Deal’

While looking for low prices is an important part of financial responsibility, it’s only one component: getting the value you need is the other half. For example, buying the cheapest brand of conditioner may seem frugal, but if you have to use twice as much as any other brand, it may end up costing just as much.

Value Vs. Price

The "value" of an item is subjective, while price is relatively fixed. Two people may see the same item as having different values even when the price is the same.

  • Value: How much an item is worth to a buyer/seller (usually determined by how much you need or want an item).
  • Price: How many dollars an item costs. Dollars are sort of a generic value unit we’ve all agreed upon.

In many cases, value and price line up pretty well, and merchants will try to keep the two in line. Value really shoots up when a seller is asking for less than you’re willing to pay.

Maximizing Value

So how can you make sure you spend your dollars to maximize their value? Here are some tips.

  • Buy second-hand: Thrift stores, flea markets and garage sales are all excellent places to find good values because they’re filled with items that haven’t declined in intrinsic worth but whose owners grew tired of them. Gently used items are often steeply discounted and still perfectly functional (but avoid super-cheap items that are simply junk).
  • Spread the word: Let your friends and family members know what you’re looking for – someone may be trying to “get rid of” exactly what you need. When you’re in a store, tell the sales associate what you’re looking for. Ask for advice and find out if any discounts might be available.
  • Shop ahead & behind: If you know you’ll need a new pair of sneakers once a year, keep your eyes peeled at all times for bargains – many staples won’t “go bad” from sitting around a while. Take advantage of end-of-season sales to stock up for the next year (think Halloween decorations on November 1st).
  • Use the Internet: Craigslist, eBay, Freecycling, Amazon and other websites often offer significant discounts from retail prices. But if you don’t want to buy online or don’t like to pay for shipping, you can still use the Internet to get an idea of what various vendors charge for the item in question (and use that knowledge to bargain).

If you start thinking in terms of value, you'll be able to save money while getting your true dollar's worth—particularly important if you're struggling with debt or rebuilding your finances after bankruptcy.

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Tuesday, July 7th, 2009

Choosing a Lender to Rebuild Credit After Filing Bankruptcy

If you’re trying to build or rebuild your credit after bankruptcy, you probably know that using credit responsibly is your primary goal.

Here’s how to set yourself up for success in borrowing.

Choose Affordable Payments: Before signing loan papers or credit card agreements, you’ll need to do a four-part math problem:

  1. Check your budget. Determine exactly how much money you have left over each month (no generalizing!).
  2. Calculate monthly payments for your loan. Again, make sure you know exactly what you can expect from the life of your loan – no assuming, no generalizing.
  3. Compare the two numbers. If your leftover money is less than the monthly payments, you cannot afford the loan. Assuming you’ll get a raise or a bonus is dangerous, especially in this economy.
  4. Leave a cushion. Remember: part of financial stability is saving money for unexpected emergencies, so if you’d have to spend all your income to cover the loan, you can’t afford it.

Beware of Hidden Costs: Make sure you read the entirety of a loan or credit card agreement before signing it.

If you’re not comfortable interpreting legalese, enlist the help of a bankruptcy attorney. Be on the lookout for the following.

  • Fees & costs associated with the account. Yearly charges, overdraft charges, late charges, early payment charges and others add up quickly and can cost more than you realize.
  • Fluctuating interest rates. Credit card issuers are infamous for advertising low interest rates, but not the fact that many such rates last for only a short period. Make sure you understand what events could lead to your paying more in interest (missed payments, going over your limit, etc.).

Avoid Common Predatory Practices: Unfortunately, some lenders will count on your ignorance about lending practices to trick you into paying more than you should.

Watch out for common schemes like the bait and switch, equity stripping, loan packing and loan flipping.

Bottom Line: There’s No Rush

Many people are eager to reestablish credit after a bankruptcy filing, but don’t let this drive to improve your finances lead to poor borrowing decisions.

Right after filing bankruptcy, you can expect to pay a bit more in interest rates and to qualify for lower loan amounts.

But, if the offers you receive seem too expensive, wait a while.

With a year or so of strong credit practices under your belt, you should be able to get more affordable loans – and improve your chances of improving your credit and staying debt-free.

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Posted in Post-Bankruptcy Debtor Education | No Comments »