Collection Companies are annoying to the consumer and necessary for the companies they represent. If you owe a debt, you are obligated to pay it, unless, of course there are good reasons such as contracts not met, inferior product, unauthorized charges etc. With so many people now laid-off, taking pay cuts and fighting for paychecks from hurting employers, the "past due' situation has gotten much worse. Over 60% of consumers have experienced a collection notice at one time or another in their lives. Sometimes through no fault of their own.
If you should receive a collection notice from a collection agency:
1) Make sure you know who the collection agency is representing. Many times you will receive a notice from the agency itself as though you owe them a debt and no mention of who they are representing.
2) Immediately write a challenge letter asking them for proof that this debt is accurate.
A collection agency, upon first notice must allow you up to 30 days to challenge the debt before they can attach this information to your credit report. ALWAYS make use of that time by challenging your debt whether or not it looks valid. You can buy yourself extra time to pay the debt before it goes on your credit record by asking the collection agency to go back to the creditor and get the information you asked for. Many times it will take that original company over 30 days to get back to their collection agency. You've just bought your self possibly over 60 days that may be helpful for you to accumulate enough money to pay the debt and save your credit.
3) BEFORE you pay your obligation make a phone call to the original creditor. Tell them you do not work with debt collectors and that you will be sending them the check directly IF they can guarantee to you that this will not be recorded on your credit record.
4) If you are forced to pay the collection agency make sure they do NOT record this on your credit record. If they tell you they will report this debt as being paid tell them that is not good enough. What they mean is that they will report the debt as a collection and show that it was paid. This does NOTHING positive to your credit score. You want this removed completely if you pay this debt in full.
Manage your credit before it manages you!
Order Free Credit Report(s) Online
To
receive your free credit reports online, visit the official website: www.annualcreditreport.com
Sunday, April 19, 2009
Monday, April 13, 2009
The 5 ways Insurance Companies View Your Credit
The 5 ways Insurance Companies View Your Credit.
When you purchase insurance there are many factors that go into the premiums you will pay. One of those factors is your Insurance Credit Score. Insurance companies will pull your credit from the credit bureaus and assign what they call an “insurance” score that may be different than your FICO or normal credit score. Some will pull one credit bureau over the next and some may choose all three major reports. Allstate, for example pulls Trans Union reports. The insurance score will help these companies in determining your insurance premium costs along with many other factors of coverage risk. While it is not known exactly how much your credit affects your premiums, it is a factor. .Insurance companies tell you they have been able to predict how likely you are to have a claim in the future by your credit score. They also feel that they can determine better whether you will be able to pay your premiums by your score. Many challenge the validity of the relationship between credit scores and insurance risk but insurance companies still pull your credit. If they determine your score is too low they may either increase your premium to cover the risk of insuring you or along with other factors deny you all together.
What do insurance companies look at regarding your credit? They will offer only generalities. How much this information exactly influences your premium amount is unknown and not divulged by the insurance industry.
1. Insurance Companies look at the number of months since your most delinquent payment, a payment made over 30 or more days late. If you have no lates in the last 5 years you’re good and your score isn’t affected in a negative way. If you have any payments that have been late over 30 days or more within the last five years, your score will be less favorable.
2. The number of revolving accounts where the current balance that you owe is greater thank the largest balance you once owed is also a consideration. Allstate uses a 75% debt limit. For instance, your highest balance (not credit limit) on your credit card (revolving account) was $5000.00. Now you owe $3550.00. For Allstate’s score purposes you now owe 71% of the high balance you once had. Since the threshold to a better premium has fallen under the 75% rule, you will be looked at favorably when calculating your best possible premium.
3. The average number of months your accounts are listed on your credit report is also considered, commonly referred as credit history. The longer the average age of all your accounts, the better your score will be. The insurance industry generally uses 14 years as an average.
4. The number of revolving accounts opened in the last two years influences your insurance credit score as well. Mortgages and car loans are not considered in this calculation. If you have no revolving credit issued to you in the last two years your score is more favorable.
5. The existence of public cases, tax liens, bankruptcies, collections and foreclosures will definitely have a negative effect on insurance premiums you will pay. In general these types of items are thought to predict greater possibility of future insurance losses and pay outs.
Equally as important as the 5 ways Insurance Companies can view your credit report to calculate your premiums, there are also several items of information they cannot use for or against you from your credit files.
They are:
1. The total number inquiries in your file. While this typically will lower your standard credit score for future debt the more inquiries you have in your file, this is not considered in your insurance risk factor.
2. The total amount of unused credit available will not be considered when creating an insurance score. That is where the 75% Allstate rule comes in. You should owe no more than 75% of your highest balance you had on given accounts.
3. Lack of credit history is not to be used against you in determining your insurance premiums. This is unlike banks who may deny you any credit if you have little or no credit to prove your worth.
4. Any vehicle or home purchases are not considered in your insurance premium calculation.
The types or credit and debit cards as well as who has issued them are prohibited from consideration when determining your insurance premiums. The amounts and the payment history, however, is allowed to be considered.
How do I manage my insurance score? The first step is to determine what your insurance company considers in their determination of your premiums you will pay. Contact your agent, your company or look at your insurance policy for an explanation. Get a copy of your credit report from the reporting agencies they use and you should be able to determine where your strengths and weaknesses lie. Those will be the areas you need to strengthen with careful and intended use of your credit.
When you purchase insurance there are many factors that go into the premiums you will pay. One of those factors is your Insurance Credit Score. Insurance companies will pull your credit from the credit bureaus and assign what they call an “insurance” score that may be different than your FICO or normal credit score. Some will pull one credit bureau over the next and some may choose all three major reports. Allstate, for example pulls Trans Union reports. The insurance score will help these companies in determining your insurance premium costs along with many other factors of coverage risk. While it is not known exactly how much your credit affects your premiums, it is a factor. .Insurance companies tell you they have been able to predict how likely you are to have a claim in the future by your credit score. They also feel that they can determine better whether you will be able to pay your premiums by your score. Many challenge the validity of the relationship between credit scores and insurance risk but insurance companies still pull your credit. If they determine your score is too low they may either increase your premium to cover the risk of insuring you or along with other factors deny you all together.
What do insurance companies look at regarding your credit? They will offer only generalities. How much this information exactly influences your premium amount is unknown and not divulged by the insurance industry.
1. Insurance Companies look at the number of months since your most delinquent payment, a payment made over 30 or more days late. If you have no lates in the last 5 years you’re good and your score isn’t affected in a negative way. If you have any payments that have been late over 30 days or more within the last five years, your score will be less favorable.
2. The number of revolving accounts where the current balance that you owe is greater thank the largest balance you once owed is also a consideration. Allstate uses a 75% debt limit. For instance, your highest balance (not credit limit) on your credit card (revolving account) was $5000.00. Now you owe $3550.00. For Allstate’s score purposes you now owe 71% of the high balance you once had. Since the threshold to a better premium has fallen under the 75% rule, you will be looked at favorably when calculating your best possible premium.
3. The average number of months your accounts are listed on your credit report is also considered, commonly referred as credit history. The longer the average age of all your accounts, the better your score will be. The insurance industry generally uses 14 years as an average.
4. The number of revolving accounts opened in the last two years influences your insurance credit score as well. Mortgages and car loans are not considered in this calculation. If you have no revolving credit issued to you in the last two years your score is more favorable.
5. The existence of public cases, tax liens, bankruptcies, collections and foreclosures will definitely have a negative effect on insurance premiums you will pay. In general these types of items are thought to predict greater possibility of future insurance losses and pay outs.
Equally as important as the 5 ways Insurance Companies can view your credit report to calculate your premiums, there are also several items of information they cannot use for or against you from your credit files.
They are:
1. The total number inquiries in your file. While this typically will lower your standard credit score for future debt the more inquiries you have in your file, this is not considered in your insurance risk factor.
2. The total amount of unused credit available will not be considered when creating an insurance score. That is where the 75% Allstate rule comes in. You should owe no more than 75% of your highest balance you had on given accounts.
3. Lack of credit history is not to be used against you in determining your insurance premiums. This is unlike banks who may deny you any credit if you have little or no credit to prove your worth.
4. Any vehicle or home purchases are not considered in your insurance premium calculation.
The types or credit and debit cards as well as who has issued them are prohibited from consideration when determining your insurance premiums. The amounts and the payment history, however, is allowed to be considered.
How do I manage my insurance score? The first step is to determine what your insurance company considers in their determination of your premiums you will pay. Contact your agent, your company or look at your insurance policy for an explanation. Get a copy of your credit report from the reporting agencies they use and you should be able to determine where your strengths and weaknesses lie. Those will be the areas you need to strengthen with careful and intended use of your credit.
Friday, April 10, 2009
Debt Reduction/Modification....is it safe for you?
“Get out from under your credit card debt now!” “Reduce your debt over 60% and sleep better at night.” “Avoid bankruptcy!”
Don’t you believe a word of it!!!!! This is akin to borrowing from a high interest finance company. Well, I guess I might not go so far as completely telling you not to consider a debt reduction company at all since I don’t know your situation, but I am hoping the information I give you will help you determine whether or not this type of company can do more harm to you than good. I am sure there are consumers that feel these types of options have been helpful and those who have felt totally ripped off. In general these types of companies are VERY risky and can have a long term negative effect on your credit and your ability to get future credit regardless of what they claim.
As I investigate these companies from a potential customer point of view I have formed some common observations. See if these things fit within your hopes and dreams to reduce or eliminate your debt without paying it all back.
These companies typically lure you in by letting you know there is a “secret” credit card companies don’t want you to know. Come on. There is no secret. The secret is one you already know. If you are in trouble with your accounts you call them and try to work out a solution directly with them. The secret is, that with the economy today, most creditors in danger of losing money are willing to talk and to help.
Here’s what I have observed in these programs based on personal conversation with their counselors:
TYPE OF DEBT:
Only unsecured debt is eligible. Unsecured debts are those without assets such as a house, car, bank accounts or investments attached to them should you fail to pay them off. Ineligible debts then would be mortgages, car loans, federally backed financial obligations, and secured credit cards. The most common types of debt eligible for this type of program are unsecured credit cards, signature loans or lines of credit as well as debt from repossession or a debt forgiven.
MINIMUM DEBT:
Most debt consolidation companies don’t want to touch you unless you have a MINIMUM of $10,000 in unsecured debt. The reason? Their fees (revenue) are based on your balances. The higher the balances you have to work on, the higher the fees to the debt reduction company. These companies who charge fees to help you are “for-profit” companies.
FEE STRUCTURE:
Administrative Fees: Almost all of these companies will charge you an administrative fee anywhere from 10-15% of the total balance you want to work on. This is an up front fee payable over the first few months of your plan. For example, if you have about $20,000.00 in a combination of credit cards and small loans you would be charged anywhere from $2000.00 to $3000.00 over the first few months of the monthly payments they set for you. Keep in mind they get paid first before any negotiations on your behalf with your creditors. Fees first, debt payment last.
Monthly Service Fees: Every month you will be charged a separate fee for maintaining and servicing your account. The amounts range from $39.95 to $59.95 per month.
Savings Fee: At the end of the settlement, some companies may charge you another 10% of the savings (difference between what you originally owed and what your creditor agrees to take). Take the $20,000 example. The negotiator was able to secure an agreement to pay your creditor $10,000 in full showing a $10,000 savings to you or 50% of your original balance owed. The additional fee on the amount you saved would be another $1000 in cost to you.
PROCEDURE:
Information Gathering: Information on you is gathered by a counselor. At this time the
total debt is determined in your conversation. At times you may be pressed by your counselor about other debt that can be included. The more debt you want to negotiate, the higher the fees to the company who negotiates on your behalf. WARNING: When you first call these companies they may capture the incoming phone numbers so they can call you back and solicit should you decide not to go forward. Keep in mind also that debt leads (you) can be sold for a handsome sum to other companies offering debt programs.
Paperwork: When you contract with one of these companies you will have several forms to
sign. Most companies will set up a trust or an escrow account where your monthly payments will be deposited and held until you have enough to negotiate with. These trust or escrow account will not accrue interest for you. Others will have you set up your own savings account in the bank of your choice but they will want to be able to withdraw their fees through Electronic Funds Transfers from your account. The advantage of this is that at least while accumulating the funds you can draw interest on them. THE DEBT REDUCTION COMPANIES WILL GET THEIR FEES FIRST before any negotiation takes place on your account. FEES FIRST, NEGOTIATIONS LAST.
Approval for the program: Your information will be presented to an Oversight Board, Underwriters or whatever each company wants to call them. They will determine if you have the ability to make the monthly payments with success. It’s not the debt they are worried about; it’s the fees they want to collect from you.
Monthly Payments: Based on their guidelines and the total of all your debt, you may be
extended payments over 12, 24, 36, through 48 months with the median being 20-24 months. The debt reduction company will tell you to stop making any payments on your debts and make The monthly payments they have set up for you. They will tell you that no creditor will negotiate unless you are behind in payments. Some companies will deduct your Monthly Service Fee from these payments and some will directly charge your checking account as an outside expense. The administrative fee of 10-15% will be deducted from your account over the first 12 or so months depending on your terms. The balance of your payments after fees then goes toward your negotiation accumulation. If you have a company that also takes another percent of the amount they save you, that fee is generally deducted from the balance upon negotiation at the end.
Negotiation: At the end of your monthly payment agreement and not until then can this ompany attempt to negotiate on your behalf. BEWARE: During this time you are not paying anything on your debts and your creditors can still charge fees and interest as well as sue and garnish you. If this occurs, you have paid significantly more than what you owed in the first place. There is nothing about a debt reduction company that legally stops any kind of collection
efforts by your creditor.
Cancellation: If, at any time you cannot continue with this plan you are not obligated for
future fees if you notify your counselor in writing. You are also not entitled to a refund of any
fees that have already been collected as well. In addition, some may have cancellation fees that
I’ve seen as high as $299.00.
Let’s look at the possible financial side of this using $15,000 in unsecured debt. If you contract with Company A you are told that you can pay 20 payments of $502.05 over the next 20 months. That would be a total of $10041.00. From this amount you are assessed a 10% administrative fee of $1500.00 which will be paid to Company A over the first 10 months they withdraw from your escrow account. You are also paying a monthly service charge of $39.95. Over 20 months that would be a total of $799.00.
So far if you honor this agreement your debt looks like this:
Unsecured Debt $15000.00
Negotiate 50% $ -7500.00
Total debt owed $7500.00 You pay to creditor
Add ons:
Admin Fee $1500.00
Service Charge $799.00
Savings Fee 10%
of $7500.00 $ 750.00
__________
$3049.00 You pay to Debt reduction Co.
__________
Total Paid by you $10549.00
$10,549.00 is 70% of your total original debt. This is NOT the 50-60% reduction they claim. Now add to this the potential 18-35% interest rate and all the late fees the credit card companies may assess you and you haven’t saved a thing.
You can work up your own outcome with the information you get from the company of your choice but I will offer these observations for you to think about.
1. If you are behind in your payments you, yourself are in a position to call your creditor and see if you can make some modifications such as a reduced monthly interest rate for a time or a temporary change in the minimum monthly payments. With what is happening in the economy today they may jump at the chance. You may also save your credit report from too many 30,60,90 days lates accumulating on your account that could accumulate waiting for a debt reduction company to work on your behalf. You would be better off applying these payments to your debts on a monthly basis in good faith than hiring a debt reduction company. Most creditors will set up a budget plan with you if you prove you can honor it and make a sincere effort to make good on your debts.
2. Keep in mind that when going with a debt reduction company, there is virtually little contact with your creditor during the time you are sending payments for the time the company has set up for you. The company does not negotiate until it has the funds ready. During this time your balances may increase with fees your creditor can impose on you for non-payment even though in good faith you are putting away money to offer a settlement. Of course debt reduction companys do encourage you to pay more and finish faster but it doesn’t matter to them. During this time of no contact your creditors could increase your balances owed, harass and sue you. Then you are out the money you owe due to garnishment AND the fees you paid this company.
3. While debt reduction companies may NOT report that you are working with them to the credit bureaus, your creditors may directly report a write-off of the amount they negotiate and note that you worked with a debt reduction company in doing so. They also will report an increased debt due to interest and various charges. The hits to your credit report are serious and are not avoidable. Don’t believe a debt reduction company that says they can do anything positive with you credit report. It won’t happen and is not at all possible.
4. If you work up a rather large debt forgiveness with your creditors, they have, at their option, the ability to file a Debt Forgiveness Form 1099-C on you with the IRS. Come next year you will need to include that amount in your taxable income for the year. The only exception today is the mortgage program the federal government has exempted for those in mortgage trouble.
5. If you even remotely entertain this service make sure you research the company you are considering. Check for complains with the BBB and with various other consumer websites. The FTC website is loaded with careful cautions on these companies and has litigated against them.
6. If you are at the point where creditors will not work with you, you are ready to throw up your hands and give up, do NOT fall victim further. Look for totally non-profit debt management companies. They are out there. The trustworthy ones are totally non-profit. No fees. No obligations. They are funded by grants to help consumers for free. Look to your creditors and ask for their advice on debt counselors they trust and work with. Some of them will actually be very helpful. Look to your state’s attorney general or your state’s consumer division for advice on reputable companies if you can’t do this on your own.
7. Remember that credit is a major stressor in our lives. Work as hard as you can to correct your past mistakes, make a plan for the future and do your best. Like a diet, it takes hard work and discipline but you can do it.
Don’t you believe a word of it!!!!! This is akin to borrowing from a high interest finance company. Well, I guess I might not go so far as completely telling you not to consider a debt reduction company at all since I don’t know your situation, but I am hoping the information I give you will help you determine whether or not this type of company can do more harm to you than good. I am sure there are consumers that feel these types of options have been helpful and those who have felt totally ripped off. In general these types of companies are VERY risky and can have a long term negative effect on your credit and your ability to get future credit regardless of what they claim.
As I investigate these companies from a potential customer point of view I have formed some common observations. See if these things fit within your hopes and dreams to reduce or eliminate your debt without paying it all back.
These companies typically lure you in by letting you know there is a “secret” credit card companies don’t want you to know. Come on. There is no secret. The secret is one you already know. If you are in trouble with your accounts you call them and try to work out a solution directly with them. The secret is, that with the economy today, most creditors in danger of losing money are willing to talk and to help.
Here’s what I have observed in these programs based on personal conversation with their counselors:
TYPE OF DEBT:
Only unsecured debt is eligible. Unsecured debts are those without assets such as a house, car, bank accounts or investments attached to them should you fail to pay them off. Ineligible debts then would be mortgages, car loans, federally backed financial obligations, and secured credit cards. The most common types of debt eligible for this type of program are unsecured credit cards, signature loans or lines of credit as well as debt from repossession or a debt forgiven.
MINIMUM DEBT:
Most debt consolidation companies don’t want to touch you unless you have a MINIMUM of $10,000 in unsecured debt. The reason? Their fees (revenue) are based on your balances. The higher the balances you have to work on, the higher the fees to the debt reduction company. These companies who charge fees to help you are “for-profit” companies.
FEE STRUCTURE:
Administrative Fees: Almost all of these companies will charge you an administrative fee anywhere from 10-15% of the total balance you want to work on. This is an up front fee payable over the first few months of your plan. For example, if you have about $20,000.00 in a combination of credit cards and small loans you would be charged anywhere from $2000.00 to $3000.00 over the first few months of the monthly payments they set for you. Keep in mind they get paid first before any negotiations on your behalf with your creditors. Fees first, debt payment last.
Monthly Service Fees: Every month you will be charged a separate fee for maintaining and servicing your account. The amounts range from $39.95 to $59.95 per month.
Savings Fee: At the end of the settlement, some companies may charge you another 10% of the savings (difference between what you originally owed and what your creditor agrees to take). Take the $20,000 example. The negotiator was able to secure an agreement to pay your creditor $10,000 in full showing a $10,000 savings to you or 50% of your original balance owed. The additional fee on the amount you saved would be another $1000 in cost to you.
PROCEDURE:
Information Gathering: Information on you is gathered by a counselor. At this time the
total debt is determined in your conversation. At times you may be pressed by your counselor about other debt that can be included. The more debt you want to negotiate, the higher the fees to the company who negotiates on your behalf. WARNING: When you first call these companies they may capture the incoming phone numbers so they can call you back and solicit should you decide not to go forward. Keep in mind also that debt leads (you) can be sold for a handsome sum to other companies offering debt programs.
Paperwork: When you contract with one of these companies you will have several forms to
sign. Most companies will set up a trust or an escrow account where your monthly payments will be deposited and held until you have enough to negotiate with. These trust or escrow account will not accrue interest for you. Others will have you set up your own savings account in the bank of your choice but they will want to be able to withdraw their fees through Electronic Funds Transfers from your account. The advantage of this is that at least while accumulating the funds you can draw interest on them. THE DEBT REDUCTION COMPANIES WILL GET THEIR FEES FIRST before any negotiation takes place on your account. FEES FIRST, NEGOTIATIONS LAST.
Approval for the program: Your information will be presented to an Oversight Board, Underwriters or whatever each company wants to call them. They will determine if you have the ability to make the monthly payments with success. It’s not the debt they are worried about; it’s the fees they want to collect from you.
Monthly Payments: Based on their guidelines and the total of all your debt, you may be
extended payments over 12, 24, 36, through 48 months with the median being 20-24 months. The debt reduction company will tell you to stop making any payments on your debts and make The monthly payments they have set up for you. They will tell you that no creditor will negotiate unless you are behind in payments. Some companies will deduct your Monthly Service Fee from these payments and some will directly charge your checking account as an outside expense. The administrative fee of 10-15% will be deducted from your account over the first 12 or so months depending on your terms. The balance of your payments after fees then goes toward your negotiation accumulation. If you have a company that also takes another percent of the amount they save you, that fee is generally deducted from the balance upon negotiation at the end.
Negotiation: At the end of your monthly payment agreement and not until then can this ompany attempt to negotiate on your behalf. BEWARE: During this time you are not paying anything on your debts and your creditors can still charge fees and interest as well as sue and garnish you. If this occurs, you have paid significantly more than what you owed in the first place. There is nothing about a debt reduction company that legally stops any kind of collection
efforts by your creditor.
Cancellation: If, at any time you cannot continue with this plan you are not obligated for
future fees if you notify your counselor in writing. You are also not entitled to a refund of any
fees that have already been collected as well. In addition, some may have cancellation fees that
I’ve seen as high as $299.00.
Let’s look at the possible financial side of this using $15,000 in unsecured debt. If you contract with Company A you are told that you can pay 20 payments of $502.05 over the next 20 months. That would be a total of $10041.00. From this amount you are assessed a 10% administrative fee of $1500.00 which will be paid to Company A over the first 10 months they withdraw from your escrow account. You are also paying a monthly service charge of $39.95. Over 20 months that would be a total of $799.00.
So far if you honor this agreement your debt looks like this:
Unsecured Debt $15000.00
Negotiate 50% $ -7500.00
Total debt owed $7500.00 You pay to creditor
Add ons:
Admin Fee $1500.00
Service Charge $799.00
Savings Fee 10%
of $7500.00 $ 750.00
__________
$3049.00 You pay to Debt reduction Co.
__________
Total Paid by you $10549.00
$10,549.00 is 70% of your total original debt. This is NOT the 50-60% reduction they claim. Now add to this the potential 18-35% interest rate and all the late fees the credit card companies may assess you and you haven’t saved a thing.
You can work up your own outcome with the information you get from the company of your choice but I will offer these observations for you to think about.
1. If you are behind in your payments you, yourself are in a position to call your creditor and see if you can make some modifications such as a reduced monthly interest rate for a time or a temporary change in the minimum monthly payments. With what is happening in the economy today they may jump at the chance. You may also save your credit report from too many 30,60,90 days lates accumulating on your account that could accumulate waiting for a debt reduction company to work on your behalf. You would be better off applying these payments to your debts on a monthly basis in good faith than hiring a debt reduction company. Most creditors will set up a budget plan with you if you prove you can honor it and make a sincere effort to make good on your debts.
2. Keep in mind that when going with a debt reduction company, there is virtually little contact with your creditor during the time you are sending payments for the time the company has set up for you. The company does not negotiate until it has the funds ready. During this time your balances may increase with fees your creditor can impose on you for non-payment even though in good faith you are putting away money to offer a settlement. Of course debt reduction companys do encourage you to pay more and finish faster but it doesn’t matter to them. During this time of no contact your creditors could increase your balances owed, harass and sue you. Then you are out the money you owe due to garnishment AND the fees you paid this company.
3. While debt reduction companies may NOT report that you are working with them to the credit bureaus, your creditors may directly report a write-off of the amount they negotiate and note that you worked with a debt reduction company in doing so. They also will report an increased debt due to interest and various charges. The hits to your credit report are serious and are not avoidable. Don’t believe a debt reduction company that says they can do anything positive with you credit report. It won’t happen and is not at all possible.
4. If you work up a rather large debt forgiveness with your creditors, they have, at their option, the ability to file a Debt Forgiveness Form 1099-C on you with the IRS. Come next year you will need to include that amount in your taxable income for the year. The only exception today is the mortgage program the federal government has exempted for those in mortgage trouble.
5. If you even remotely entertain this service make sure you research the company you are considering. Check for complains with the BBB and with various other consumer websites. The FTC website is loaded with careful cautions on these companies and has litigated against them.
6. If you are at the point where creditors will not work with you, you are ready to throw up your hands and give up, do NOT fall victim further. Look for totally non-profit debt management companies. They are out there. The trustworthy ones are totally non-profit. No fees. No obligations. They are funded by grants to help consumers for free. Look to your creditors and ask for their advice on debt counselors they trust and work with. Some of them will actually be very helpful. Look to your state’s attorney general or your state’s consumer division for advice on reputable companies if you can’t do this on your own.
7. Remember that credit is a major stressor in our lives. Work as hard as you can to correct your past mistakes, make a plan for the future and do your best. Like a diet, it takes hard work and discipline but you can do it.
Tuesday, April 7, 2009
I'm in debt up to my eye balls....now what?
In the next few weeks I am going to report on the infamous Debt Consolidation and Debt Management programs that you hear advertised on TV, radio, mail and through the internet.
Listen, at a time in our economy when unemployment is high, debt is out of control and foreclosures, bankruptcies and repossessions are happening on almost every other block from you, the stress everyone feels is sometimes desperate and enormous. If I can give no other comfort than information I would strongly suggest to stay calm as we all weather these financial storms and stresses. Along with staying calm, become informed and organized.
In the next few weeks I am going to examine, by personal contact, the various programs that are being offered. I will ask questions that maybe you have not thought of asking and providing you with real information you must take and evaluate to your own situation. I guarantee some of you will decide you can do these things on your own, some of you may really need the service and still others will find that it will not be of any value to your situation. Just remember you can’t make informed decisions unless you have all the information and sometimes we get so mired in the hopelessness and stresses of our financial situation that we don’t always think clearly. I’m here to do that for you.
Listen, at a time in our economy when unemployment is high, debt is out of control and foreclosures, bankruptcies and repossessions are happening on almost every other block from you, the stress everyone feels is sometimes desperate and enormous. If I can give no other comfort than information I would strongly suggest to stay calm as we all weather these financial storms and stresses. Along with staying calm, become informed and organized.
In the next few weeks I am going to examine, by personal contact, the various programs that are being offered. I will ask questions that maybe you have not thought of asking and providing you with real information you must take and evaluate to your own situation. I guarantee some of you will decide you can do these things on your own, some of you may really need the service and still others will find that it will not be of any value to your situation. Just remember you can’t make informed decisions unless you have all the information and sometimes we get so mired in the hopelessness and stresses of our financial situation that we don’t always think clearly. I’m here to do that for you.
8 Considerations for a Checking Account
For those of you who need a checking account, there are several answers you should have before you commit your funds to a bank or credit union. For those who have an existing checking account, its time you re-evaluate your relationship and make the necessary changes either within your existing account or with another financial institution.
1. Do not pay for printed checks. Most banks offer basic accounts with free check printing. Checks printed from a bank are usually far more expensive than those you can order outside of the bank. If you are computer and financially savvy enough you can print your own checks as you need them. With the use of cash cards, one does not need as many paper checks as in the past.
2. Look for a cash card that will offer you rewards but do not sacrifice paying other fees just to get one. Cash cards operate like checks but many times the withdrawal of your funds occurs on the spot from your account. If you don’t have a balance in your account, do not use your cash card. Most banks will not reject your use of your card should it overdraw you unless you call the bank and tell them to put a cap on your withdrawals in relation to your balance. They are just waiting to hit customers with additional fees and do not have your best interest at heart when it comes to putting money in their pockets due to your inability to manage your own funds.
3. Do not rely on float between your deposits and withdrawals. While I have talked about “float”, the time it takes between when you write a check or use your cash card to the actual withdrawal of funds from your cash balance in your checking account, I sincerely don’t recommend it. I’ve talked about how the new legislation called “Check 21” has encouraged banking institutions to submit electronic copies of your checks to speed up the “cashing” of the checks you write while being able to put a hold on the collection of your deposits. The “float” is virtually non-existent with “Check 21” and also with the use of cash cards, so hoping for and anticipating any type of float will more than likely expose your checking account funds to overdraft fees which are very expensive. Consumers who bank on “float” (or what’s left of it) are those who are constantly (every day) monitoring their checking accounts online.
4. Sign up to monitor your accounts online. It’s safe and secure. You get real time balance information and activity. You also can do a variety of other transactions without going into the physical bank such as funds transfers and online bill payments. Most banks will not charge a fee for these benefits because online access automates transactions they would normally pay a teller to do. If you are a “bare bones” consumer, operating paycheck to paycheck with little or no extra balance of funds, online banking is a better way to make sure you don’t overdraw your account. And for those who don’t want to bank online, keep a register of all deposits, checks written and cash card transactions for a reasonable calculation of available balance.
In this era of cash cards, often used just like writing out a check or taking cash out of our account, it can be a challenge to make sure you have recorded all your transactions and not forget to deduct them from your account cash balance. I suggest you always ask for receipts when using your cash card and at the end of the day, record your card receipts in your register.
5. If you are finding it hard to stay on top of your available balance and avoid
overdrafting your account, consider applying for an “overdraft line of credit”. This is usually a short term loan with a maximum approved balance you can use should one or more of your expenditures put your account in a negative situation. Be aware of the interest rate on these short term notes and don’t rely on these unless absolutely necessary. If you have to use your “overdraft protection” pay the amount you use as quickly as possible. In some instances, where you are facing a deadline and your paycheck falls after the due date you may benefit from using overdraft protection to avoid negative consequences of making a bill or credit card payment late. Again, if you believe you need overdraft protection, use it sparingly and pay it back as soon as possible. Also remember that should you leave a balance on your overdraft loan for more than 30 days you will find it calculating against your credit score. This is another bill owed and could be counted as a revolving line of credit which you could max out and will lower your credit score.
6. Avoid using your cash card for small withdrawals at ATM’s that charge you a fee and are non-affiliated with your bank. Your bank will let you know what ATM’s are free to use. Plan ahead for your cash needs so you don’t get into an emergency situation and are forced to pay ATM fees for the little cash you may withdraw. These fees can be anywhere from $1.50 to sometimes $4.00 ($2.00 for the participating ATM and an additional $2.00 to your bank for having to deal with another party for the mere $20-$40 you may withdraw). This could calculate to be as much as a 10% charge on the cash you receive. For that kind of charge I would love to be on the receiving end of those often overlooked fees. Why on earth would a financially responsible person forgo up to 10% of the funds he withdraws? You can barely earn interest at 1.5% in your savings accounts now days!
7. Avoid the interest checking account if you don’t have cash to stash. Most checking accounts that say they will pay you interest at barely 1.5% today also require you to keep a very high balance in the account. You would be better off getting a basic free checking account, no monthly fees and taking your extra cash, should you have any, to look for a good high yield money market which typically pays you better on untouched balances.
8. Set up automatic deposits. It is always better and a more efficient use of your deposits should you have them deposited electronically. Most banks will give you same day use of these types of funds compared to depositing paper checks. Paper checks are usually subject to a bank hold of up to 7 or more days depending on the distance of the participating bank. Keep in mind that when you deposit a paper check, the teller submits a 5-7 day hold on the funds but doesn’t mention that to you. It would be on your deposit receipt but most of the time you may not even know the bank is holding your funds until you get notice of “uncollected funds fees” which are equivalent to the amount the bank charges in overdraft fees.
Banks are not inherently evil but they are profit making businesses that create their profit from many types of fees and interest charges. Why not charge fees to those who don’t pay attention? As a consumer, your goal is to get as much service for as little or no cost as possible. Make your money work for you. As much as the banks and financial institutions charge fees for all their services to make a profit, so too should you avoid those fees whenever possible to conserve your everyday cash position. It’s all about value and conservation of your own worth and wealth.
1. Do not pay for printed checks. Most banks offer basic accounts with free check printing. Checks printed from a bank are usually far more expensive than those you can order outside of the bank. If you are computer and financially savvy enough you can print your own checks as you need them. With the use of cash cards, one does not need as many paper checks as in the past.
2. Look for a cash card that will offer you rewards but do not sacrifice paying other fees just to get one. Cash cards operate like checks but many times the withdrawal of your funds occurs on the spot from your account. If you don’t have a balance in your account, do not use your cash card. Most banks will not reject your use of your card should it overdraw you unless you call the bank and tell them to put a cap on your withdrawals in relation to your balance. They are just waiting to hit customers with additional fees and do not have your best interest at heart when it comes to putting money in their pockets due to your inability to manage your own funds.
3. Do not rely on float between your deposits and withdrawals. While I have talked about “float”, the time it takes between when you write a check or use your cash card to the actual withdrawal of funds from your cash balance in your checking account, I sincerely don’t recommend it. I’ve talked about how the new legislation called “Check 21” has encouraged banking institutions to submit electronic copies of your checks to speed up the “cashing” of the checks you write while being able to put a hold on the collection of your deposits. The “float” is virtually non-existent with “Check 21” and also with the use of cash cards, so hoping for and anticipating any type of float will more than likely expose your checking account funds to overdraft fees which are very expensive. Consumers who bank on “float” (or what’s left of it) are those who are constantly (every day) monitoring their checking accounts online.
4. Sign up to monitor your accounts online. It’s safe and secure. You get real time balance information and activity. You also can do a variety of other transactions without going into the physical bank such as funds transfers and online bill payments. Most banks will not charge a fee for these benefits because online access automates transactions they would normally pay a teller to do. If you are a “bare bones” consumer, operating paycheck to paycheck with little or no extra balance of funds, online banking is a better way to make sure you don’t overdraw your account. And for those who don’t want to bank online, keep a register of all deposits, checks written and cash card transactions for a reasonable calculation of available balance.
In this era of cash cards, often used just like writing out a check or taking cash out of our account, it can be a challenge to make sure you have recorded all your transactions and not forget to deduct them from your account cash balance. I suggest you always ask for receipts when using your cash card and at the end of the day, record your card receipts in your register.
5. If you are finding it hard to stay on top of your available balance and avoid
overdrafting your account, consider applying for an “overdraft line of credit”. This is usually a short term loan with a maximum approved balance you can use should one or more of your expenditures put your account in a negative situation. Be aware of the interest rate on these short term notes and don’t rely on these unless absolutely necessary. If you have to use your “overdraft protection” pay the amount you use as quickly as possible. In some instances, where you are facing a deadline and your paycheck falls after the due date you may benefit from using overdraft protection to avoid negative consequences of making a bill or credit card payment late. Again, if you believe you need overdraft protection, use it sparingly and pay it back as soon as possible. Also remember that should you leave a balance on your overdraft loan for more than 30 days you will find it calculating against your credit score. This is another bill owed and could be counted as a revolving line of credit which you could max out and will lower your credit score.
6. Avoid using your cash card for small withdrawals at ATM’s that charge you a fee and are non-affiliated with your bank. Your bank will let you know what ATM’s are free to use. Plan ahead for your cash needs so you don’t get into an emergency situation and are forced to pay ATM fees for the little cash you may withdraw. These fees can be anywhere from $1.50 to sometimes $4.00 ($2.00 for the participating ATM and an additional $2.00 to your bank for having to deal with another party for the mere $20-$40 you may withdraw). This could calculate to be as much as a 10% charge on the cash you receive. For that kind of charge I would love to be on the receiving end of those often overlooked fees. Why on earth would a financially responsible person forgo up to 10% of the funds he withdraws? You can barely earn interest at 1.5% in your savings accounts now days!
7. Avoid the interest checking account if you don’t have cash to stash. Most checking accounts that say they will pay you interest at barely 1.5% today also require you to keep a very high balance in the account. You would be better off getting a basic free checking account, no monthly fees and taking your extra cash, should you have any, to look for a good high yield money market which typically pays you better on untouched balances.
8. Set up automatic deposits. It is always better and a more efficient use of your deposits should you have them deposited electronically. Most banks will give you same day use of these types of funds compared to depositing paper checks. Paper checks are usually subject to a bank hold of up to 7 or more days depending on the distance of the participating bank. Keep in mind that when you deposit a paper check, the teller submits a 5-7 day hold on the funds but doesn’t mention that to you. It would be on your deposit receipt but most of the time you may not even know the bank is holding your funds until you get notice of “uncollected funds fees” which are equivalent to the amount the bank charges in overdraft fees.
Banks are not inherently evil but they are profit making businesses that create their profit from many types of fees and interest charges. Why not charge fees to those who don’t pay attention? As a consumer, your goal is to get as much service for as little or no cost as possible. Make your money work for you. As much as the banks and financial institutions charge fees for all their services to make a profit, so too should you avoid those fees whenever possible to conserve your everyday cash position. It’s all about value and conservation of your own worth and wealth.
Thursday, April 2, 2009
Once Again a Warning about Credit Cards – 4 Areas to Manage
The economy is in a mess right now. Some of this mess is of our own making, some of it unavoidable and some of it not as bad as we think. Regardless, each one of us must maintain our own heads with our own finances and credit cards is the single most influence on our psyche, our pocket books, our wealth and finally our credit scores. Kind of large don’t you think?
So here you go. How do you maintain or manage your own credit cards? You always look for the hidden fees BEFORE you apply for new or even use existing credit cards because terms are changing without notices, bold print or a slap in the head to get your attention.
If you are the kind of consumer who opens your statements, pays the bill and either throws the statement away or tosses it into a pile, never to be looked at again, please think twice. Unless you log and examine your bills every month you may miss hidden fees that credit card companies are charging you to recoup the massive losses they are incurring at an alarming rate due to the financial crisis.
Take for example:
1. Rate Hikes
Unprovoked: In this troubled economy most credit card companies are doubling and sometimes even tripling the interest rates they charge you to buy on credit. They need to make up for their losses of income due to the economy and the amount of customers defaulting on their accounts. ( That’s another whole bucket of mess itself) . Keep in mind that you may not get a separate notice or a bolded and separate line item on your statement to draw your attention to a change. The only way you will notice a rate hike is by looking closely at your statement and knowing the interest rate as it had been versus what is calculating now. Here’s where not paying attention to your finances can really hurt you. Sooner or later you may notice your finance charges have gotten quite large but you may not notice that for a couple of months if even then.
Provoked: One of the things credit card companies are doing, again in reaction to the credit crisis, is to change their terms of interest. It would be a change in the default rate more than likely and that default rate is the rate you are charged should you pay late, go over your credit limit or default the terms of the credit card in any way. Once you have violated their terms the credit card company hikes your interest rate to the default rate which is sometimes double or more over what you were initially paying them. You then have to contact the credit card company to see if they have any redemption rules, rules that would allow you to return to your original interest rate once you have satisfied their requirements. This though, is an outside shot as many credit card companies are thrilled they could push you into the higher interest rate and are not likely to lower it for you anytime soon. It’s money out of your pocket and into their profits.
2. Cutting the credit limits to almost nothing.
Unprovoked: Credit card companies, because they can, may lower your credit limit to sometimes just $2-3 dollars over your current balance without warning. They may have decided that credit limits at a certain amount are just too high a risk for the company to take in these times and therefore lower everyone’s credit limits within that range whether a good customer or not. The only place you might notice the change is your statement if you pay attention. You could be the best customer in the world and still have your credit limit lowered.
The rub is in the lack of notice that this has happened to you. Again, if you are not paying attention you could ruin your credit, interest rate and definitely your credit score. How? By accidentally charging and going over your limit. If you are not aware you credit limit has been lowered to just above your current balance and you charge thinking you have room, when in reality you don’t, you can go over your credit limit. And once you go over your credit limit, the terms of the credit card allows them to charge you fees, overlimit fees which are expensive. They may then also be able to raise your interest rate to the default interest rate that is double, sometimes triple what it was initially. The financial effects of this can have a snowball effect on your debt and may be devastating to your credit.
Provoked: You can get your credit limit lowered all by yourself by your own credit card management behavior. Missing payments, lower credit scores, excessive borrowing and maxing out your credit limits are all red flags to credit card companies that they should lower their risk by lowering your available credit. Just like credit scores, your limits are reduced far faster than they are increased. Again you could contact your credit card company to see if they have a program by which you can satisfy certain requirements and they will reinstate your original limit. I would not hold my breath though.
3. International Fees
International fees are those fees international banks charge to flow transactions through them either to a foreign country or to the US. While international fees were normally 1-2% of the total balance they have now increased to over 3% in some instances. You don’t have to be abroad to be charged international fees. If you buy something from another country either through E-Bay or directly you will more than likely pay an international fee.
4. Credit Protection Plans
When you are approved for a credit card you are offered an opportunity to enroll for a credit protection plan which is charged monthly at $1.00 for about every $100.00 of credit limit. The implied protection you get is that in the event you are laid-off or become disabled your monthly payments, possibly your balance will be paid by the insurance company the Protection Plan uses.
DON’T EVEN THINK ABOUT IT. This is nothing but a money-making gimmick and very rarely does it do what you assume it should. Until you go to use it you don’t know about the strict loopholes they have enabling the insurance company not to pay on your behalf. By also invoking this program you may give the credit card company an excuse to lower your credit limit, enforce your default interest rate, freeze your account or maybe altogether close it as though they closed your account for your irresponsibility. And the clincher is that your credit score is harmed. For more information on credit card protection insurance read my December 12, 2008 blog, "Credit Card Insurance: Is it worth it?"
Be your best advocate and pay more attention to your bills than you have in the past.
Not everyone is an accountant but you can still protect yourself by just paying more attention to your finances and where they go every month under what terms. By not paying attention to your own finances you are turning financial power over to those who’s bills you pay rather than you, the consumer controlling your own financial destiny.
So here you go. How do you maintain or manage your own credit cards? You always look for the hidden fees BEFORE you apply for new or even use existing credit cards because terms are changing without notices, bold print or a slap in the head to get your attention.
If you are the kind of consumer who opens your statements, pays the bill and either throws the statement away or tosses it into a pile, never to be looked at again, please think twice. Unless you log and examine your bills every month you may miss hidden fees that credit card companies are charging you to recoup the massive losses they are incurring at an alarming rate due to the financial crisis.
Take for example:
1. Rate Hikes
Unprovoked: In this troubled economy most credit card companies are doubling and sometimes even tripling the interest rates they charge you to buy on credit. They need to make up for their losses of income due to the economy and the amount of customers defaulting on their accounts. ( That’s another whole bucket of mess itself) . Keep in mind that you may not get a separate notice or a bolded and separate line item on your statement to draw your attention to a change. The only way you will notice a rate hike is by looking closely at your statement and knowing the interest rate as it had been versus what is calculating now. Here’s where not paying attention to your finances can really hurt you. Sooner or later you may notice your finance charges have gotten quite large but you may not notice that for a couple of months if even then.
Provoked: One of the things credit card companies are doing, again in reaction to the credit crisis, is to change their terms of interest. It would be a change in the default rate more than likely and that default rate is the rate you are charged should you pay late, go over your credit limit or default the terms of the credit card in any way. Once you have violated their terms the credit card company hikes your interest rate to the default rate which is sometimes double or more over what you were initially paying them. You then have to contact the credit card company to see if they have any redemption rules, rules that would allow you to return to your original interest rate once you have satisfied their requirements. This though, is an outside shot as many credit card companies are thrilled they could push you into the higher interest rate and are not likely to lower it for you anytime soon. It’s money out of your pocket and into their profits.
2. Cutting the credit limits to almost nothing.
Unprovoked: Credit card companies, because they can, may lower your credit limit to sometimes just $2-3 dollars over your current balance without warning. They may have decided that credit limits at a certain amount are just too high a risk for the company to take in these times and therefore lower everyone’s credit limits within that range whether a good customer or not. The only place you might notice the change is your statement if you pay attention. You could be the best customer in the world and still have your credit limit lowered.
The rub is in the lack of notice that this has happened to you. Again, if you are not paying attention you could ruin your credit, interest rate and definitely your credit score. How? By accidentally charging and going over your limit. If you are not aware you credit limit has been lowered to just above your current balance and you charge thinking you have room, when in reality you don’t, you can go over your credit limit. And once you go over your credit limit, the terms of the credit card allows them to charge you fees, overlimit fees which are expensive. They may then also be able to raise your interest rate to the default interest rate that is double, sometimes triple what it was initially. The financial effects of this can have a snowball effect on your debt and may be devastating to your credit.
Provoked: You can get your credit limit lowered all by yourself by your own credit card management behavior. Missing payments, lower credit scores, excessive borrowing and maxing out your credit limits are all red flags to credit card companies that they should lower their risk by lowering your available credit. Just like credit scores, your limits are reduced far faster than they are increased. Again you could contact your credit card company to see if they have a program by which you can satisfy certain requirements and they will reinstate your original limit. I would not hold my breath though.
3. International Fees
International fees are those fees international banks charge to flow transactions through them either to a foreign country or to the US. While international fees were normally 1-2% of the total balance they have now increased to over 3% in some instances. You don’t have to be abroad to be charged international fees. If you buy something from another country either through E-Bay or directly you will more than likely pay an international fee.
4. Credit Protection Plans
When you are approved for a credit card you are offered an opportunity to enroll for a credit protection plan which is charged monthly at $1.00 for about every $100.00 of credit limit. The implied protection you get is that in the event you are laid-off or become disabled your monthly payments, possibly your balance will be paid by the insurance company the Protection Plan uses.
DON’T EVEN THINK ABOUT IT. This is nothing but a money-making gimmick and very rarely does it do what you assume it should. Until you go to use it you don’t know about the strict loopholes they have enabling the insurance company not to pay on your behalf. By also invoking this program you may give the credit card company an excuse to lower your credit limit, enforce your default interest rate, freeze your account or maybe altogether close it as though they closed your account for your irresponsibility. And the clincher is that your credit score is harmed. For more information on credit card protection insurance read my December 12, 2008 blog, "Credit Card Insurance: Is it worth it?"
Be your best advocate and pay more attention to your bills than you have in the past.
Not everyone is an accountant but you can still protect yourself by just paying more attention to your finances and where they go every month under what terms. By not paying attention to your own finances you are turning financial power over to those who’s bills you pay rather than you, the consumer controlling your own financial destiny.
Wednesday, April 1, 2009
6 Efficient Ways to Manage the Cash in your Checking Account
Ever find yourself facing a deadline for a bill payment but it falls just before or on your paycheck date? You don’t want to miss your due date because that can mean you may lose your bargain interest rate, slapped with a larger interest rate next month, get your credit limit reduced automatically and/or lower your credit score. What to do?
Times used to be when you could write a check to pay a bill on or before its due date and the check would not clear (funds withdrawn) your bank for 2-3 days. You would have a few days to make sure you have deposited enough funds to cover the payments that are due. This was known as “check float”, the time it takes from writing your check to the actual presentation of the check and withdrawal of those funds from your account. Those days are long gone. So are the days of having a rather large stash of funds so that due dates aren’t quite such a crisis. Today its many times paycheck to paycheck.
In 2003. the Federal Government under pressure from banks passed the Check Clearing for the 21st Century Act also known as “Check 21”. This act allowed participating banks to use electronic imaging of checks they receive to present to the bank from which the check was written for faster collection of funds. That meant everything electronically transmitted would get same/next day attention collecting the money out of your account. While this Act shortened the time it takes before a bank takes your money, it did nothing to allow the same courtesy in collecting your paychecks and deposits timely. Banks can still hold paper check deposits according to the policies they set. That means that your bank may cash the check you wrote and still put a hold on your regular paper and paper paycheck deposits. This may sometimes create a serious negative balance in your checking account upon which you will be incurring many different fees charged against your checking account according to your bank’s policies. It can snowball on you if you are not careful. Doesn’t seem quite fair does it? Unless consumers rise up and put a consumer advocacy group together there’s not much one can do except legally manage your finances around this law.
Here are several things you can do to protect yourself from one-sided law.
1. Sign up for direct deposit whenever possible.
Generally your paychecks from your employer or funds requested that are electronically sent through the “Direct Deposit” system is available either by midnight or early the next morning of your paycheck date or deposit date. No receiving bank can hold an electronic direct deposit from your account unless there are serious security and or theft issues. While this won’t solve all your timing issues it will be helpful.
CAUTION: Make sure that the issuing party does not have a processing lag time between your request and the actual electronic transaction into your requested account.
One example: ING Direct, an online bank will allow you to set up online transfer
requests from your checking or saving accounts you have with them to any outside bank account you have verified with them. While you may have cash in one of their accounts they have a policy that your funds are going to be deposited no earlier than 3 business days. Here is an instance of electronic lag times from an issuing bank.
WARNING: Any checks and payments that come through your bank at the end of the previous day are usually processed first before next day deposit transactions which can create a situation called “unavailable funds” regardless of midnight or early morning deposits . “Unavailable funds” occurs when a check or payment is presented and paid before your deposit is considered collected in your account. Not only can this occur but the order in which these checks/payments are paid can slam you with many more fees than normal. Many banks will process the largest payment first which may not overdraw you but as they process the next smaller amounts you may be hit for each transaction after that. Check with your bank on their interpretation and timing of this situation as it creates fees against your account identical to expensive overdraft fees.
2. Customize your due dates.
You should map out the timing of your financial transactions. It is easier if you do this on paper. Take a calendar and first plot out the dates of your income. It may be weekly on the same day of the week, bi-weekly (every two weeks), semi-monthly (twice a month usually the 1st and the 15th or the 15th and the end of the month) or monthly. Record the amount net of taxes, the amount you will receive in your account after payroll taxes. If you are not sure estimate 15-20% of the gross amount you make should be subtracted for taxes. You now know how much you will be generating every pay period and be better able to determine how long those funds should last.
Next you should plot out all your debts by their due dates. Add each pay period’s debt obligations and compare them to your income. Are too many clustered around a certain date, say perhaps the 15th of the month? Call your creditors and see if they will change your due date so that you can spread out your obligations over the timing of your income. You may also arrange your own payment date when you pay certain bills online but that usually means you are having to pay your payments earlier than your original due date. You will have to get permission directly from your creditor and have them change your due dates if you want to postpone your original due dates by a few days. Not all will agree but its always worth a try.
You are the best source for determining how often you want to pay bills and how you want to pay them.
3. Leverage your credit cards.
This is tricky and involves careful monitoring of your credit cards, balances and due dates. If you don’t have the time to manage your credit cards more carefully than simply using and then paying them, this is not something you should undertake.
Leveraging your credit cards means that you may make purchases right after your due date is met. Your report to the credit bureau by your creditor will be made at statement time with the balance after your payment is applied. Right after that date you could use your credit card to make a purchase you planned on paying in full anyway sometime during the month. That will give you up to three weeks or more before you have to part with that money. That means you could make a budgeted purchase sooner interest free only IF you make that payment before the card’s next due date and you have not already spent the extra funds. Do not make a habit of this if you don’t have the time to spend managing your budget because sooner or later this can catch up with you and you may end up paying large amounts of finance charges due to your negligence in staying aware of your cash situation.
4. Enroll in online banking.
Online banking provides the tools for you to monitor our funds on a daily or weekly basis. You can see what is clearing in your account sooner and get a better feel for your bank’s posting procedures. Remember: Not all banks and credit unions have to adopt Check 21 but it is encouraged. Online banking allows you quicker access to your other accounts transfers and deposits when you need to cover payments. Many banks will allow you to pay your bills for free directly from your accounts which offers you better control of your funds.
Security is becoming less of an issue nowadays and is actually safer than putting
checks in the mail.
5. Take advantage of alerts and alarms that are offered on your accounts whether they are checking accounts, credit cards, loan accounts or any debt you have.
Many times your financial institution or credit card companies will allow you to set up automatic e-mail notification of statement availability, payment reminders, deposit alerts, fee notifications, late payments etc. If you are not internet savvy take some time to become better aquainted, save yourself some time and set these alerts up. We all get busy with our lives and it’s easy to attend to an alert before some consequence when we are notified beforehand. Forgetting is easy and remembering is hard so why not make your life a little easier with automatic reminders?
6. Work on your own personal overdraft cushion.
While most of our banks allow us to apply for a small unsecured note or line of credit that will automatically activate once our checking account overdrafts, we will sometimes pay a heavy price for using that small loan to cover our mistake or timing issue.
There are also techniques by which you write yourself a check which shows less funds than you actually have but not all of us can operate with a false balance. If you can, the best option is to attach a savings account to your checking account and squirrel away $500 to $1000 at least in the event of an overdraft issue in your checking account.
Don’t assume your bank will automatically withdraw those funds in your savings to keep you from paying overdrafts. You will have to talk with your bank or credit union to make sure that they will set that up automatically for you. You will save yourself overdraft fees and grief if you do this correctly while still managing a little interest on these funds waiting for use.
If you find your bank or credit union is not cooperative in helping you avoid overdrafts then find another bank. Remember, banks make money on the interest you pay to borrow from them. Keep borrowing to a minimum and pay yourself interest on the use of your own funds.
There is virtually no way around the management of your cash any way you look at it. Banks have made it easier to take your money and harder for you to accumulate it. Be smarter and wiser by managing your own funds. Make it harder for banks to use and spend your hard earned cash by decreasing the opportunities for them to charge you fees. They are in business to make money from you and you should be using them to create wealth for yourself. You can’t create your own wealth from giving someone else your cash.
Times used to be when you could write a check to pay a bill on or before its due date and the check would not clear (funds withdrawn) your bank for 2-3 days. You would have a few days to make sure you have deposited enough funds to cover the payments that are due. This was known as “check float”, the time it takes from writing your check to the actual presentation of the check and withdrawal of those funds from your account. Those days are long gone. So are the days of having a rather large stash of funds so that due dates aren’t quite such a crisis. Today its many times paycheck to paycheck.
In 2003. the Federal Government under pressure from banks passed the Check Clearing for the 21st Century Act also known as “Check 21”. This act allowed participating banks to use electronic imaging of checks they receive to present to the bank from which the check was written for faster collection of funds. That meant everything electronically transmitted would get same/next day attention collecting the money out of your account. While this Act shortened the time it takes before a bank takes your money, it did nothing to allow the same courtesy in collecting your paychecks and deposits timely. Banks can still hold paper check deposits according to the policies they set. That means that your bank may cash the check you wrote and still put a hold on your regular paper and paper paycheck deposits. This may sometimes create a serious negative balance in your checking account upon which you will be incurring many different fees charged against your checking account according to your bank’s policies. It can snowball on you if you are not careful. Doesn’t seem quite fair does it? Unless consumers rise up and put a consumer advocacy group together there’s not much one can do except legally manage your finances around this law.
Here are several things you can do to protect yourself from one-sided law.
1. Sign up for direct deposit whenever possible.
Generally your paychecks from your employer or funds requested that are electronically sent through the “Direct Deposit” system is available either by midnight or early the next morning of your paycheck date or deposit date. No receiving bank can hold an electronic direct deposit from your account unless there are serious security and or theft issues. While this won’t solve all your timing issues it will be helpful.
CAUTION: Make sure that the issuing party does not have a processing lag time between your request and the actual electronic transaction into your requested account.
One example: ING Direct, an online bank will allow you to set up online transfer
requests from your checking or saving accounts you have with them to any outside bank account you have verified with them. While you may have cash in one of their accounts they have a policy that your funds are going to be deposited no earlier than 3 business days. Here is an instance of electronic lag times from an issuing bank.
WARNING: Any checks and payments that come through your bank at the end of the previous day are usually processed first before next day deposit transactions which can create a situation called “unavailable funds” regardless of midnight or early morning deposits . “Unavailable funds” occurs when a check or payment is presented and paid before your deposit is considered collected in your account. Not only can this occur but the order in which these checks/payments are paid can slam you with many more fees than normal. Many banks will process the largest payment first which may not overdraw you but as they process the next smaller amounts you may be hit for each transaction after that. Check with your bank on their interpretation and timing of this situation as it creates fees against your account identical to expensive overdraft fees.
2. Customize your due dates.
You should map out the timing of your financial transactions. It is easier if you do this on paper. Take a calendar and first plot out the dates of your income. It may be weekly on the same day of the week, bi-weekly (every two weeks), semi-monthly (twice a month usually the 1st and the 15th or the 15th and the end of the month) or monthly. Record the amount net of taxes, the amount you will receive in your account after payroll taxes. If you are not sure estimate 15-20% of the gross amount you make should be subtracted for taxes. You now know how much you will be generating every pay period and be better able to determine how long those funds should last.
Next you should plot out all your debts by their due dates. Add each pay period’s debt obligations and compare them to your income. Are too many clustered around a certain date, say perhaps the 15th of the month? Call your creditors and see if they will change your due date so that you can spread out your obligations over the timing of your income. You may also arrange your own payment date when you pay certain bills online but that usually means you are having to pay your payments earlier than your original due date. You will have to get permission directly from your creditor and have them change your due dates if you want to postpone your original due dates by a few days. Not all will agree but its always worth a try.
You are the best source for determining how often you want to pay bills and how you want to pay them.
3. Leverage your credit cards.
This is tricky and involves careful monitoring of your credit cards, balances and due dates. If you don’t have the time to manage your credit cards more carefully than simply using and then paying them, this is not something you should undertake.
Leveraging your credit cards means that you may make purchases right after your due date is met. Your report to the credit bureau by your creditor will be made at statement time with the balance after your payment is applied. Right after that date you could use your credit card to make a purchase you planned on paying in full anyway sometime during the month. That will give you up to three weeks or more before you have to part with that money. That means you could make a budgeted purchase sooner interest free only IF you make that payment before the card’s next due date and you have not already spent the extra funds. Do not make a habit of this if you don’t have the time to spend managing your budget because sooner or later this can catch up with you and you may end up paying large amounts of finance charges due to your negligence in staying aware of your cash situation.
4. Enroll in online banking.
Online banking provides the tools for you to monitor our funds on a daily or weekly basis. You can see what is clearing in your account sooner and get a better feel for your bank’s posting procedures. Remember: Not all banks and credit unions have to adopt Check 21 but it is encouraged. Online banking allows you quicker access to your other accounts transfers and deposits when you need to cover payments. Many banks will allow you to pay your bills for free directly from your accounts which offers you better control of your funds.
Security is becoming less of an issue nowadays and is actually safer than putting
checks in the mail.
5. Take advantage of alerts and alarms that are offered on your accounts whether they are checking accounts, credit cards, loan accounts or any debt you have.
Many times your financial institution or credit card companies will allow you to set up automatic e-mail notification of statement availability, payment reminders, deposit alerts, fee notifications, late payments etc. If you are not internet savvy take some time to become better aquainted, save yourself some time and set these alerts up. We all get busy with our lives and it’s easy to attend to an alert before some consequence when we are notified beforehand. Forgetting is easy and remembering is hard so why not make your life a little easier with automatic reminders?
6. Work on your own personal overdraft cushion.
While most of our banks allow us to apply for a small unsecured note or line of credit that will automatically activate once our checking account overdrafts, we will sometimes pay a heavy price for using that small loan to cover our mistake or timing issue.
There are also techniques by which you write yourself a check which shows less funds than you actually have but not all of us can operate with a false balance. If you can, the best option is to attach a savings account to your checking account and squirrel away $500 to $1000 at least in the event of an overdraft issue in your checking account.
Don’t assume your bank will automatically withdraw those funds in your savings to keep you from paying overdrafts. You will have to talk with your bank or credit union to make sure that they will set that up automatically for you. You will save yourself overdraft fees and grief if you do this correctly while still managing a little interest on these funds waiting for use.
If you find your bank or credit union is not cooperative in helping you avoid overdrafts then find another bank. Remember, banks make money on the interest you pay to borrow from them. Keep borrowing to a minimum and pay yourself interest on the use of your own funds.
There is virtually no way around the management of your cash any way you look at it. Banks have made it easier to take your money and harder for you to accumulate it. Be smarter and wiser by managing your own funds. Make it harder for banks to use and spend your hard earned cash by decreasing the opportunities for them to charge you fees. They are in business to make money from you and you should be using them to create wealth for yourself. You can’t create your own wealth from giving someone else your cash.
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