The Truth of Credit

There are worse things than being in deep debt, but not many.  The problem is that you are constantly paying for past mistakes and those mistakes have a resounding compound effect. Having bad credit can effect many aspects of your life from potential jobs, to how much you pay in car insurance. However, there is a light at the end of tunnel. You can and will get another chance.

Life Lines:

• Statue of Limitations - If you are way behind on bills, in every state there is a certain amount of time in which a creditor can bring suit against you. However, each state is different but on average the statue of limitations is 5 years. Check your state here.

• Consumer Credit Counseling – Whether you are facing an immediate crisis or just want to learn how to improve your financial health, CCCS can help.

• Debtors Anonymous - Debtors Anonymous is a fellowship of men and women who share their experience, strength and hope with each other that they may solve their common problem and help others to recover from compulsive debting.
  

• Bankruptcy – Don’t get caught up in the bankruptcy, avoid defeatism self talk. Bankruptcy was created for a reason and if all fails, you need to do it. In fact, it might accelerate your ability to recover.

So is your life over because you have a very low credit score? No, absolutely not. However, it’s time to take control and stop the victim mentality. You didn’t get a 400 credit score overnight and you surely will not have an 800 by next week. With the right plan and self discipline you can regain the direction of your financial health.

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Let’s face it, for most people in New York City a car is a necessity. Unless you are Amish or under the age of 16, you probably either have a car or need one badly. The problem is coming up with $10,000 to $50,000 for a new car is not easy to get for most of us. In fact, the majority need to borrow from parents or personal savings just to get a down payment. Then on top of that, you will need to finance the debt with a bank for the remaining. Nothing new there, right? Well, being in debt sucks, anyone will tell you that.  So what are some way I can accelerate my repayment?

With the quickness:

• Pay more each month: Duh, seems obvious, but some loans make you pay penalties for paying debt sooner. You’ll find that a majority of the finance companies make most of their money in the first 36 months of a car loan. The sooner you can start paying these loans down, you’ll be thanking your self 5-6 years later.

• Make Bi-weekly payments: This may go hand and hand with the suggestion given before, but you’ll find that if you are able to split your payments, you may be able to pay more each time which has a snowball effect.

• Getting another job: Look, I’m a big believer that you work to live, not live to work. So I have a tough time with this one. However, if getting out of debt is a major priority for you this step can only help. I implore you to really think about this because there are major benefits and consequences to this.

Now, before you comment, I know this sounds overly simplified but really it is. There are no tricks. There are options like refinancing, which can and could save you money but you really need to do the math. Not all deals are created equal. Also, a car loan, unless it is outrageous, should be one of the last debts you pay down. If you have credit cards or loans that are accruing interest at 20% plus you need to focus your efforts there first.

Is your car paid off? If so, how long did it take?

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Let’s get the disclaimer out of the way: I AM NOT AN ATTORNEY. More importantly, I don’t know the laws in your state or your personal situation. All I have is years of experience and a fairly good idea how creditors (generally credit card companies) work. So I want to write this post for the person who is worried they are going to be sued but has not run this scenario by their lawyer.

It should not be a surprise that YES a creditor does have the ability to sue you for not paying them.  Unless you borrowed money from family or a close friend, more than likely there will be a clause or some stipulation that the creditor has recourse for non-payment.

The big misconception is that if you are making some form of payment that they will not sue you. This is far from the case. Any payments not paid pursuant to an agreement with the creditor are simply voluntary payments on a debt. That does not stop the creditor from suing you (and ultimately garnishing your wages, etc.).

Here is the tricky part, more than likely you are dealing with a collection agency at this point. They will say they are a “firm” or “law center” but most are just collection agencies; do not be fooled. Getting them to send you payment arrangements in writing is going to be difficult, if not impossible. The only exception, normally, would be a settlement offer in which you can and should always get in writing. What you do have as evidence is your bank statements and most reputable collection agencies record their calls.

Just as a heads, up if you are dealing with the likes of Capital One or Bank of America, they tend to be much more aggressive then other creditors. However, more than likely if you have a payment arrangement and can give copious notes on who you spoke to and who their boss is, etc… you should not have a problem.

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Feeding your family is why most people go to work every morning. To give you an exact percentage for your budget would be misleading because I know nothing of your station in life nor how much money you make, etc… we will only speak in generalities here. So lets talk about what actually goes into a food budget.

Rick’s Food Budget:

• Groceries
• Toiletries (Kleenex, napkins, etc..)
• Lunches at work cafeteria

What’s Not in Food Budget?

• Dining Out
• Delivery (Pizza, Chinese food, etc.)

The reason I keep these separate is because I feel that the latter is more of an entertainment expense and can be adjusted depending on how things are going. To give you some figures, last month my food budget was 14% of my total budget. However, that’s with only 2 adults and no children.

Again, your budget maybe drastically different than mine. The best best way to start is to get some kind of personal financial software. There is mint.com which I highly recommend (and is free) also Bank of America customers have the ability to track their spending habits through their personal online banking, so check with your bank too. Start with three months to get a good read on what you are spending and then start to make adjustments.

Remember, the most important thing is that you’re managing your money in such a way that you’re able to invest and save significant amounts of money to meet financial goals and prepare for your future.

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Retirement products can be extremely confusing. Add to the mix a few job changes, and following your 401(k) money can seem like a dentist visit (annoying but very necessary). The fact is that you are really only hurting yourself by not keeping this money all in one account; preferably your current employer’s 401(k) plan. Trust me, the custodians of your previous accounts are still collecting their fees and that is eating away at the gains you maybe be receiving. So here is the best way to get these accounts together:

Just to rehash, you are only hurting yourself by not keeping up to date with these accounts. To make an analogy, if you were a general and your money was your soldiers, wouldn’t you exploit the weakness in the tax code by concentrating your forces where it will benefit you the most? It only makes sense right?

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It’s the Tuesday after Labor Day weekend and I know what you are thinking, the absolute last thing you want to do is get up and go to work. Who can blame you, when all you did all weekend was play with your kids, played a round of golf or even read that book you have been itching to get to? However, this morning, it’s back to making sure you have your security pass and what can I do to make myself look busy today. The fact is, having a job you hate “SUCKS”. There is no sugar coating it and no better word that even Shakespeare could use to describe it.

Unfortunately, the fact is that what you are doing for a living is your fault. Sure you can bridge the gap with a variety of different occupations but once you get past the first year you need to really think long and hard about the road you are traveling. There are the rare exceptions, like the military, where you are legally obligated to stay for an extended period of time but I’m troubled to think of any others off-hand. The point is, after a year you should have a good barometer as to if I like this job or it’s just not going to work.

The TRUTH is if your job is so bad, you would have been gone months ago. Something is keeping you there; be it the people, the money or how quick it takes you to get home. You should always think about the positive and be grateful that you even have a job. But it’s important to remember, that as long as you hate going to work you will never be great at it, so what’s the point?

Don’t take it from me, consider the late DJ AM’s words of wisdom:

“My mom always said you want to be happy in life, find something you love to do so much, you’d do it for free, then find somebody to pay you for it.”

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“I don’t know what they want from me, It’s like the more money we come across, the more problems we see.” – Notorious B.I.G

Certainly, at some point you have heard the phrase, “more money, more problems”. First and foremost, I’m not a millionaire nor do I pretend to be. However, I have to laugh when people have said this to me in the past. Really, how hard can it be to have money in the bank and know your future is reasonably secure? The problem is that while you are accumulating this great wealth certain things will naturally attach themselves to you.

Simply put, everyone and everything is looking for increase in their life. There is nothing wrong with that but not everyone and everything is positive. For example, having money probably can get you a table on Friday night at the best steakhouse in town. However, it can also open the door to better and more addictive drugs, not to mention leaches. On top of that, you are now going to attract considerably more jealousy and envy from the people you know.

The TRUTH is I would much rather deal with begrudging co-workers or country club members than worrying about feeding my family tomorrow. How about you? Maybe being poor you have less problems but they are much more severe than the rich person’s are. So next time someone tells you wealth isn’t all it’s cracked up to be, consider the source.

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• The best way I have found to combat this negativity is to ask yourself every night before you go to bed, “Have I done everything I could to reach my wealth goal today?”

Try to think of your thoughts as compound interest. For every positive thought you have today, you may not see the benefit immediately but over the course of several months you will see your situation turn itself around exponentially. That I can promise you!

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How much debt do you still carry around from your college days? Be it credit cards or students loans, most people start out their financial life way behind and are in a constant state of catch up. When you are in college, you have a very optimistic view of the world; you think you can always get a good job and pay things off. Personally, I have no problem with that thinking, in fact, it’s sound, but there are some very common things that can happen that will throw a wrench in your plans:

1. You are going to want your own place – Once you get out of school you’re not going to want to live in your parent’s home anymore. Therefore, a major portion of your new paycheck is going to go to the rent or mortgage. My advice is simple, stay at home as long as you can stand it. If you thought the stress of finals was bad just wait until you have rent due and you don’t have the money.

2.You are going to want a new car - Sooner or later you are going to realize that a car is one of, if not the worst investments you can make. It’s best to learn that now instead ofthe hard way. However, if you are driving a piece of crap that needs repairs every three weeks then maybe you should bite the bullet. The point is, don’t be quick to go buy a new Lexus when your current car can still be used for a few more years.

3. You are going to want to travel or have a great social life – This is where you can really get burned. Please save up for the trips to Las Vegas or the Jersey shore, don’t putthem on credit cards. One rule I’d like to suggest to all of you, is that when you go drinking with the boys/girls make sure to take your credit cards out of your wallet. Just like drivingdrunk isn’t wise neither is debting while intoxicated.  Do you really want to pay 20% interest for a round of shots?

In the future, all of these thoughts will be ringing true in your head one way or another. The question will be how you handle them. My promise to you is this, if you can learn financial discipline early it will become almost automatic for the rest of your life. The bottom line is to watch the decisions you make as opposed to saying “F–k it, I’ll pay it next month.” Learn it here now, instead of the hard way.

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For those of you who recently looked up your ING Direct accounts lately and saw 1.4% yield, this post is for you. Those saving accounts and CD’s just aren’t performing like they used to. The frugal lifestyle is not as glamorous as the stock-tipping spend thrift. It’s now going to take TIME to accumulate money; the quick bucks are gone. However, that my friends is not necessarily a bad thing.

Does this make Savings Accounts and CD’s bad investments?

• No, although it is ultraconservative, you cannot lose your money with these investments. My grandmother is always is telling me she is worried about her bank “failing” and my reply is always, “If you lose the money in your savings account we (all Americans) are all in serious trouble.”
• Also, inflation has been relatively stagnate so you are not losing your future buying-power. That was always my favorite argument against savings instruments in the past.

What about holding on to my money?

• Honestly, that’s not a bad idea either, especially if you are a “doomsday-er”. Stuffing your mattress did work in the past, so maybe it’s time to reinstate that policy. However, I would advise that you make sure no one knows you are hoarding money and a fireproof safe would be a great investment.
• Stocks and Real Estate right now should be a “rich” man’s game. For every expert saying now is the time to get in there are 3 more saying to stay out. Trust your gut!

Ideally, if you have some credit card debt and a car payment, I would work to get rid of those ASAP. It makes no sense to put $1,000 on a stock or in savings when you are paying 21% interest on a $5,000 CitiCard. Once you are out of the shackles of credit, the world of investing will be wide open to you.

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There are a lot of financial writers that will say that you should be open about and talk about your finances. Talking about money can have many benefits. In fact getting someone perspective can actually be just what you need. But is that really the smartest thing for your situation? Is it really anyone’s business?

Personally, I don’t like people that brag or flaunt their money. Unfortunately, there are plenty of people that do exactly that. The problem I see for them is that people begin to expect things from them and when they decline they become the “bad guy”. When you are poor people tend to feel sorry for you and honestly who wants that?

So the next time you feel compelled to spout out about your wealth or lack there of please think twice. Honestly, its nobody business.

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When struggling financially there is a lot of emotion that can get in the way of clear thinking. You are constantly spinning “what if?” questions in your mind and wondering if there is enough money to cover the check you just wrote. Then you get a call from your friendly (mostly commonly unfriendly) debt collector explaining that you owe this amount and it needs to be paid yesterday. This is where people slip all too often; they start to spread themselves thin on resources that are very limited.

So here is my list of what is important financially:

1. Food - This is basic, but if you can’t feed your kids, you have no business worrying about late fees on your credit card.
2. Shelter & Utilities – Where you lay your head at night should be guarded at all cost; not having a place to live is like turtle without a shell.
3. Car – For most of us an automobile is needed to retain a job, thus making it an essential piece of the puzzle.
4. Credit Cards and Student Loans – Never to be ignored, but you must have the other previous items taken care of before you begin to worry about these.

Remember, everyone is out for their own self interest. No bank wants to hear that their debt is not a priority, but neither would you if you were owed the money. Make sure before you make any commitment that you know what is important to you and you feel confident you are solidifying your foundation.

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