The Truth of Credit

Today on WallStreetJournal.com there is a very informative article by Rebecca Smith titled “More Utility Bills Go Unpaid”.

Articles like this can be depressing to read but there are some nuggets of good information within that might help you if you are behind on your utilities. Now, I typically don’t prioritize anyone’s bills because each situation is unique. For example, when it comes to single parents, a TV may be a necessity to keep your child entertained but I think we can all agree that heat in the cold winter months is a higher priority.

What happens when I fall behind?

• If you don’t pay your utilities, they eventually get turned off. Utilities used for heating are considered essential so most state laws give you a little time. Obviously, you don’t want to let things get to that point, but some people may need to get by without them for a bit when saving some money. Although in the end, it may end up costing you more than you save in the long term. The utility company probably charges ridiculous fees to reconnect you and may want a deposit to do so. Not to mention, if you happen to move your record of falling behind on utilities will most likely come back haunt you. Just be warned.

Are there programs that can help?

• The article mentioned above sheds light on a federal program called the Low Income Home Energy Assistance Program (LIHEAP). Which, thankfully, is getting drastically more and more funding from the US Government.
• On the state level, here is a link to the applications by state.
• On the local level, many towns can help you. Here is an example.  Most towns have a website; check under Human Services.

When it comes to the point where you cannot pay your heat or electric, it’s gut check time. At some point you are going to have to swallow your pride and ask for help. No one likes to do it and certainly it’s not the easiest thing to do, but it’s important to understand that at this time all you need to do is survive and things will get better. In tough times think small; all it takes is one small victory to get your life back in order.

Related Post:

• The Importance of Cash Flow
• The Top 7 Signs your in Deep Debt
• Hope for Homeowner’s

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by michele cat

For those of you who need to delay the collection process in order to get some money together, this post is for you. For the most part, it is just a stall, so while it’s highly effective it can also back fire of you. Under the Fair Debt Collection Protections Act (FDCPA), you are allowed to request a validation this debt, and the creditor (in most cases a collection agency) must show you proof that you owe the debt to the collection agency (not to the original creditor).

The specific section of the FDCPA:

FDCPA Section 809. Validation of debts [15 USC 1692g](b) If the consumer notifies the debt collector in writing within the thirty-day period described in subsection (a) that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or any copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector.

They must show proof positive that you owe them this debt. It’s not enough to send you a computer-generated printout of the debt. There is an opinion letter from the FTC to back this up:

http://www.ftc.gov/os/statutes/fdcpa/letters/wollman.htm

So, if a creditor can’t verify a debt:

• They are not allowed to collect the debt,
• They are not allowed to contact you about the debt, and
• They are also not allowed to report it under the Fair Credit Reporting Act (FCRA). Doing so is a violation of the FCRA, and the FCRA states that you can sue for $1,000 in damages for any violation of the Act.

As a Debt Collector my biggest fear is running into someone who knows all the laws. Most collection laws are very pro-debtor and you can tie up a debt for a long time if you know what you’re doing. At some point however, the games will be over and your stall bought time will cease to exist. So who is fooling who?

Related Post:

• 3 Goals of Debt Collectors
• Stall, Stall, Stall!
• Mini-Miranda

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mediaherd.wordpress.com

It’s a widely held belief that one should never feel bad for what is said to a debt collector. That may be true in most cases but some phrases will only turn the heat up on you.  You should be aware of these phrases to avoid further possible ”harassment”.

1. Never say you’re going to pay on a given date if you have no intention of paying on that date. The reason being, is if a collector smells money on an account it’s blood in the water. I promise you will get more than 3 calls a day if you break this arrangement; and trust me the collector will not be as nice the next time.

2. Never ask for a settlement right away. You have to understand that a bank does not have to give you a settlement.  A settlement may be the best deal for both parties but you wouldn’t go into a job interview demanding a high salary without having to answer a few questions first. This also gives you opportunity to explain why you fell behind and the sadder the story the better the settlement (You didn’t hear that from me though). Don’t make demands; that will surely start an argument and you won’t win.

3. Never threaten a collector. If someone threatens me over the phone, that speaks volume for that person. Also, it means that you aren’t thinking logically and that’s in the collector’s favor; trust me, they have these arguments all the time. Plus, all calls are recorded; think of how embarrassing it would be in a court of law to hear yourself cursing like a sailor?

Related Post:

• Can Collectors Do That?
• Favorite Debt Collector Tricks
• Is it OK for Debt Collectors to leave voicemail?

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I know it’s chic to blame everyone in Washington for our current crisis but I want to call out one in person in particular; Alan Greenspan who in 2004 was quoted as saying:

“Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.” — Alan Greenspan.

My point is that some other extremely intelligent investors, i.e George Soros and Warren Buffet, have stated that derivatives (ways of hedging risk) are “financial weapons of mass destruction”. My man Greenspan has always thought differently. The problem is the that derivatives are what promoted the riskier practices that has been rampant on Wall Street over the last view years.

Derivatives as an idea is genius, as long as the people who use them don’t succumb to greed. They’ve also allowed financial firms to lend more money because they were able to spread their risk over a broader pool.  The issue comes because banks began to lend indiscriminately to anyone with a pulse. Greenspan refused to discipline these lenders.

The Wall Street debacle that engulfed firms like Bear Stearns, Lehman Brothers and troubled the insurance giant American International Group, has been driven by the fact that they and their customers were linked to one another by derivatives. These companies got too big and when one of them failed it swallowed or severely hurt the other.

Despite this, Greenspan should not have any regrets; no government intervention could have stopped this collapse.

From his memoirs

“Risk management can never achieve perfection,”  he wrote.  He also wrote that the villains were the bankers whose self-interest he had once bet upon.

It’s funny though the demise of someone who was idolized in front of Congress for years.

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Recently, the word capitulation has been getting a lot of play in the press. If a few of you have no idea what the word means don’t feel bad; until last week, I had no idea myself.
By definition capitulation means to surrender or give up.  However, in financial circles this term is used to show a point in time when investors have decided to give up on trying to make back lost gains as a result of falling prices.

Example: Suppose a stock you own has dropped by 20%. There are two options that can be taken: you can wait it out and hope the stock begins to go up, or you can take the loss by selling the stock. If the majority of investors decide to wait it out, then the stock price will likely remain relatively stable. However, if the majority of investors decide to capitulate and give up on the stock, then there will be a drastic decline in the price. When this happens in large scale across the entire market, it is known as market capitulation.

There is a saying that the bear market will be over when all investors have capitulated. With so many people searching for the bottom, it can be hard to quantify where that point is, when it can be relatively subjective. With the way the market has been over the last month or so it’s even tougher to tell where the bottom is. Historically speaking, the bottom has been hit dramatically with mass sell offs and other times it’s been a slow process. Either way someone will make a fortune from this time of uncertainty will it be you or will you capitulate?

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