My available credit exceeds my income

One of our credit card companies (the one we actually use on a regular basis) has once again increased our credit limit by 48%. It really doesn't matter what our limits are, because we only spend what we can afford to pay off immediately. We are fortunate that we never pay any interest to these card companies because of it. I don't feel guilty, knowing they make a killing on interchange fees.

Still, I can understand how some families manage to get in over their heads. All that credit can look tempting, especially if you have an emergency. The amount of credit they will give you is staggering. In fact, the available credit on our cards (we have 4) now exceeds our total yearly income. It is humbling to think how quickly someone could ruin their lives in the blink of an eye with these tiny pieces of plastic.

Why did you take the ARM?

Countrywide is getting criticism for not permanently fixing the rates of several hundred thousand homeowners in risk of foreclosure. Part of this is being fueled by a protest group, NACA (or the Neighborhood Assistance Corporation of America).

If you take a look at their site, you will see all kinds of emotional statements designed to make you sympathetic to their cause, things that have nothing to do with subprime borrowers in foreclosure. Information such as "Chairman of Countrywide, one of the leading companies, is reported to have earned $22 million per year" seems to encourage the thought that because the CEO of a multi-billion dollar corporation is rich, he should forgive people who haven't been paying their mortgage.

These “geniuses” and their companies actually compensated their brokers and agents more if they marketed and closed loans containing abusive yield-spread premiums, low teaser and high re-set rates, and other costly loan terms and conditions

In other words, it worked like just about every commission based sale out there. Shocking that the company would give higher commission for a loan that makes the company more money.

Why on earth would the rates for these loans be so high? Why is lending to people with bad credit and lots of debt result in high rates? They answer it themselves: "almost one in every five subprime loan goes into default", yet they don't seem to make the connection. To be profitable, a bank has to get paid for the money it lends out. If a group of people tend to default at higher rates, their interest rate will be higher to ensure the bank doesn't lose money on those loans.

Modify every loan back to the rate at which these borrowers were or should have been qualified, and everyone wins. People can keep their homes and avoid financial ruin, and lenders can still receive payments on mortgages that borrowers can actually afford.

Here's the problem, NACA, they weren't qualified for payments they could afford. They were qualified for high interest adjustable rates, and that's exactly what they got. It is not the banks duty to set payments that someone can afford, it is the borrowers responsibility. What you are suggesting essentially shafts every single American paying a regular rate on a 30 year fixed.

These “genius” profit barons have pretended to create unparalleled homeownership opportunities for working people and families. Instead, they have preyed upon the most vulnerable, often based on a low credit score -- people with marginal credit and limited resources who could and should have obtained homes through fair lending practices. They charged people interest rates above 10% and often enticed them with teaser rates of 6% and less for the first two years.

The banks took a huge risk by putting these people into homes with teaser rates, when all the statistics showed that there was a high probability of default. To make such a venture profitable, they needed to charge higher interest rates later in the loan. These people could have used that time to rebuild their credit, save up to afford the new payments...anything. Instead, they rode along and when the teaser rate expired, cried foul. They can't refinance because, surprise, their credit still isn't any better.

Bottom line, it is not the banks responsibility to create a loan that is affordable to the borrower. Their only interest is in creating a loan that is profitable. It is the borrower's responsibility to determine whether that loan is affordable to them or not.

Banks don't want to foreclose. It costs money to foreclose. They end up with a house, which in all likelihood has been trashed by the deadbeat homeowner, that they have to sell for cheap at auction. They want you in your house, paying your mortgage, paying that interest. But because the group you fell into, that bad credit group, is a high risk and will default in higher numbers, your rate is higher in order to make up for the other deadbeats who do foreclose. Why is this so difficult to understand?

At the same time, some acknowledge that regardless of whether their loan is modified, some borrowers could lose their homes anyway because their financial situation is otherwise precarious.

"It all comes back to affordability," said Richard Pittman, housing services coordinator for ByDesign Financial Solutions, the Los Angeles branch of the Consumer Credit Counseling Service (CCCS). "As recently as 12 months ago, some were refinancing themselves out of their problems. A lot of them were just kidding themselves. They were fine through their second refi, but the third refi caused them problems."

Yes, I have read that a good number of these people in subprime loans in foreclosure, perhaps even the majority, are refinances. They refinanced equity to pay off their debts. This is the consequence of such a debtors lifestyle.

What is missing here? Case studies. No one appears to be asking these homeowners one very important question: "Why did you take the ARM?"...I would be very interested in hearing their answers.

Followup to unexpected medical bills

On September 7 I revealed a few medical bills that were put on our credit card. We had some hard decisions to make, and my wife and I had different strategies for tackling this new debt.

Obviously we were not going to carry a credit card balance, it had to be paid off. This left us with 3 options: tighten our belts and attack it as best we could, use a portion of our emergency fund and then repay ourselves back slowly, or use a portion of our debt repayment to pay it out. Her idea was to use the debt repayment (as that is what it is technically for) and I wanted to use the emergency fund, seeing this as an emergency.

Our compromise was to pay as much as we could during the month and see what was left over at the end, then use the debt repayment amount to pay it. Here we are at ground zero and it stands as thus: out of the $1,700 card balance we have paid off all but $400 just by saving a little extra and putting whatever we can into it (and some generous help). It's been tight. But now out of our debt repayment (what we pay extra towards the principles of our debt) we need only use $400, still allowing us to put $900 towards other debt. In the end, I think we both feel pretty good about this result.

The Black Death of the 21st Century

Here's an interesting article from MSN about a recent trend showing up in the wake of recent foreclosures. Mrs Rossman sums it up perfectly (emphasis on the two conflicting concepts added by me):

They opted to let their mortgage payments go while keeping current on all their cards. "I would rather be late on one thing than on several things," said Rossman, who works at a local church, pointing to the "very high interest rates" on their cards and the need to keep accessing credit. "But we can't just incur debt forever," Rossman, 24, also acknowledges. "We're cutting coupons, eating very cheaply and doing everything we can to stay within the budget."

Mrs Rossman gets an F for logic; better to not pay your mortgage than not pay your 6 credit cards. Late on 6 debts is worse than being late on 1 debt right? You are reading this right. This family (with a new baby no less) has decided to stop paying for their house so they can keep current on their credit cards. Why? Because they need them, and they can't stop spending.

The proliferation of no-money-down home loans over the past few years, coupled with the current housing downturn, is giving rise to a new mentality: People will risk losing their homes while doing everything to keep their credit cards.

Credit card companies are ecstatic, of course, because not only does this ensure more profit at the expense of the consumer's security but it opens a whole new market for them. Yes, right when we have ample evidence (via massive foreclosures) that lending money to people with sloppy credit or little income is a bad idea, credit card companies are targeting just that demographic.

As people such as Delana Dowdy in Darby, Mont., found out, falling home prices and tightening credit have made it harder to withdraw home equity to pay off debts such as credit card bills.

"The appraised value (of the house) didn't come high enough to consolidate our bills," said Dowdy, 36, who runs an antique store. Right now, she's behind on both her mortgage payment and card bills.

See, it never occurred to these people to just stop spending beyond their means, they are disappointed that they couldn't sign up for a new loan with some nice home equity to pay off their existing debt. As if that would be some kind of solution?

Teesa Rossman and her husband bought their house for about $135,000 two years ago with no money down. But a subsequent -- though temporary -- job loss and the birth of their first child have strained the Rockford, Ill., family's finances in recent months. Just last month, the couple found it impossible to pay all their bills and had to choose between making payments on their mortgage or their credit cards.

Why would you choose to keep a credit card company happy (and fat) rather than pay for your home? What will they do when they come home and find the locks changed and all their stuff on the sidewalk being picked through by their neighbors?

I have a reason. The same reason why a homeless man will buy a bottle of booze instead of a sandwich. Addiction. The people mentioned in this article and those like them are addicted to credit. They are addicted to creating their own lifestyle regardless of the cost, they are addicted to the materialism and the consumption of "stuff". Spending money makes them feel good, makes them feel successful, and gives them a false sense of security. What happens, then, is the music stops and they are scrambling for a chair, clipping coupons and eating Ramen noodles, but the one thing that put them in this situation - their insatiable need for credit - is the one thing they can't live without.

Credit addiction is the Black Death of the 21st century.

Don't like late fees? Try paying your bill

Are you upset that credit card late fees are staggering and out of control? I'm not. Sure, I've carried a balance in the past. I even had some significant credit card debt. But I've never paid a late fee. Why? Because I pay my bills.

Right now, the late fee on a Discover card is $15 on balances up to $500 and $39 on balances over $500. For billing periods after Oct. 1, the late fee will be $19 on balances up to $250 and $39 on balances over $250.

I understand that late fees for these cards are pure profit for these companies and they are ridiculously high, but you only get charged when you don't pay on time. With all the buzz surrounding these fees there has to be a huge number of people paying their bills late.

That’s a real stiff penalty to pay for being as little as one day late...when consumers mail in their payment seven to 10 days in advance and they still get hit with a late fee, something is really wrong.

The problem here is that there is no way to verify when your bill arrived. Yes, I have sent letters out first class that took over a week to arrive. It is somewhat unrealistic also to believe that when you send your payment via regular mail that it will be processed on the same day that the company receives it. Though large, these companies probably have many thousands of bills arriving per worker employed to process them each day. If your bill lands in someone's box at 3PM when they have a pile of payments waiting to be processed, it makes sense that it wouldn't be posted the next day. Do I think it's right? No. Do I think consumers can protect themselves fairly easily? Yes! Direct electronic bill payments are the only way to send a secure payment and have a receipt of that payment. Your alternative is to send everything by certified/receipt request mail, which of course costs quite a bit more.

How would you describe an interest rate of 28 percent to borrow money through your credit card

Why on Earth are you borrowing cash from your credit card? Further, the rates they charge are clearly listed on each bill that arrives in the mail. If you don't like paying 28% interest to borrow cash, don't do it. It's that easy.

Rather than blame the credit card industry for their crooked ways, take control. Want to avoid late fees? Pay the bill. Want to avoid high interest charges? Don't use the credit card. Don't want to pay 30% to borrow cash? Don't borrow cash. Stop feeding the beast. The only ones who can stop this madness is us: the consumer. Otherwise we are left to the regulation of the government. Like a parent disciplining a young child, it will only behave when mommy and daddy are watching (or when they think they'll get caught). And who do you think pays for that strict regulation? Is it free? No. You pay for it. Taxes.

This one nearly killed me:

If you do not have any liquid assets, consider tapping the equity in your house, through a home equity line of credit. This really makes sense if you already have an established line of credit.

What an idiotic suggestion. You are going to eat away the equity of your home and risk losing it in order to get cash? That isn't the solution. The solution is to stop borrowing money. How many of these people facing foreclosures (and crying fowl) can't refinance or sell because the value dipped below what they borrowed? How many are because people sank their other debts into home equity loans? You have a spending problem. You have a living-outside-your-lifestyle problem. Borrowing money is only going to make things worse and extend your misery because, sooner or later, you are going to have to repay it. What makes you think your situation will be any better then? You'll just have to borrow more, and extend it further. See where this is going? See where the perpetual cycle of debt leads? Utter dependency on an industry designed purely to efficiently bring more money in than it sends out.

This is a scam, perpetuated by rampant consumerism to feed off the ignorant. There is only one way to use a credit card and if you are paying late fees and interest charges, you aren't using it correctly. Government regulation is not the answer. Consumers educating themselves and making wise financial decisions are the only things that will bring the beast down.

The obsession with department store cards

It seems like just about every retail store, big and small, is getting into the credit card business. This is no surprise. All a store needs to do is team up with an existing issuer, negotiate a percentage, and hawk the card in their stores to their hapless customers. Who wouldn't want to have a hand in a 30 billion dollar cookie jar?

These cards, as well as their VISA counterparts (which most of them are converting to anyway) represent clear profit. The benefits are immediate. I will use Target as my example, since I recently witnessed something there that surprised me.

Target originally went through Household Financial, as I recall. Now apparently they have either a new division or their own in house financing called Target National Bank. Anyway, by teaming up with a bank they can negotiate or eliminate many overhead charges associated with using plastic at their POS stations, namely interchange fees. Further they get to earn interest on the purchases long after the sale is finished for those customers who carry balances.

That 10% discount they offer? Assuming they have their interchange fees (2-3%) waived and/or the corporation earns commissions from the issuing bank for the number of accounts they open, they've already recouped that loss. If you include the average markup on these items, the store is still making money even with their 10% discount.

So it is no surprise that every time I end up at the Target checkout lane, I am asked to sign up for their card. But we're not the only ones being harassed on a regular basis. Imagine working there!

Back to my experience. I was in Target and noticed a large group of redshirts in a circle dominating a clothing aisle having some kind of meeting. What caught my ear was that they were talking about the Target credit card. Apparently this Target wasn't meeting its quota for the day, so the manager was going around the group asking the employees if any of they had the Target credit card.

At the end (this all happened very quickly) the manager started in on how valuable the card was to the company and that all those employees who did not have a card (he pointed out a couple) should sign up that day and they would get 20% off their purchase, instead of the regular 10%. He then passed around a clipboard (presumably the same one the employees carry around asking customers to sign up).

Imagine! Working at a store and being forced to sit through a meeting where they point you out for not having a credit card and then being coerced on a regular basis to fill out an application.

And Target? It's the clear winner here. From my very short eavesdropping on their meeting I gleaned the following information:

• Employees get 20% off when they open a new card, not just 10% like the customers
• Stores have daily quotas they must meet for these cards
• All employees go through a hard-sale of the card during their employment
• Employees get some discount just for being employees (they did not say what amount in the meeting) but don't get their discount if they use a debit card or a credit card other than the Target VISA.
• Store "meetings" will sometimes in reality be sales pitches for high interest credit cards

Shame on Target, I say! Their employees make barely above minimum wage and - in their demographic of low-income families and college students - are more likely to carry balances and be in credit card debt.

Stores used to offer discounts to their employees as a perk. Now the discount system is designed to earn more profit for the company by coercing their employees to run up debt on their affiliated credit cards!

Credit card holders affected by subprime - good!

This is a good lesson in credit card use. Unfortunately, if you carry a balance, you will be affected by the mortgage crisis. Apparently banks that also have mortgage divisions are hiking interest rates to keep profits high.

Capital One, which is among the largest credit-card issuers in the nation...said it was raising rates because it could and because of unspecified economic conditions

Shocking! A company whose only interest is in making money off of the money you borrow decides to use the clearly defined terms to make more money to offset its losses elsewhere. Hilarious is that the customer mentioned in the article seemed upset about this. Why? You agreed that they can change your rate whenever they want and you borrowed money from them anyway. If you don't care what they charge you, fine. I imagine most people do care.

This is the same kind of whining that came about when they raised the minimum payments. The immediate logical response? Good! Raising the minimum means that any idiot paying the minimum will be in debt for a little shorter time.

Now I have some sympathy for someone who is deep in credit card debt and struggling to become debt free. They made a mistake, are paying for it, and hopefully will learn for it. Of course if you are neck deep in credit debt and you charge a single dime to that card, my sympathy evaporates.

Here's the thing about credit cards. You borrow their money for a month and pay it back, you get charged nothing. That is the only way to use credit cards, unless you like playing with fire and you're borrowing money to invest in the market. Any balance you carry you will pay interest and you will pay whatever rate they want to charge you.

If you are paying interest on your card, cut it up. Now. You do not know how to use them.

Discover motiva

I found an ad for the Discover Motiva card interesting. The ad focused on how the Motiva card gives a reward by paying you a month of your interest if you pay your bills on time for 6 consecutive months.

The actual benefit is slim. They're just offering a slightly lower APY across the entire year by waiving the interest for 2 months. What struck me is that the really encourage (and happily assume) that people are going to be carrying balances on their credit cards, thus enticing them with this deal. I also found myself wondering if there really were so many people out there who can't pay their bills on time 6 months in a row. The idea of "paying your bills on time" as a reward suggests that many don't, in fact, pay on time.

FICO score no longer includes authorized users

This was a given when the news came out about companies that were artificially boosting people's credit scores by attaching them to the credit of others who, for payment, have excellent scores.

Now the typical "sign up a dependent" for a credit card to help them establish credit will no longer work.

FICO 08 rolls out in September. Other scores like the VantageScore do not include authorized users either.

I personally agree with their decision. For students with no credit, a secured credit card will do fine.

Here's an article with more information.

Derogatory credit report UPDATE

A couple of weeks ago I checked my credit score, which I get for free with my Providian card that...well, I don't actually use and only keep because of the free score (sorry Providian). Anyway, this score fluctuates several points between months but has remained stable over the last year, which is as far back as they display the records. The score for July however dipped 30 points. I had opened up a credit card with Citibank, so I at first assumed it was because of that - though that seems like quite a drop just for opening a line of credit. However on the "reasons" it said, and still says, "You have multiple accounts showing late payments or derogatory remarks."

That's not good! I feared that either someone I do business with reported me late, which I have not been, or maybe an account had been opened I wasn't aware of and wasn't being paid. After mulling it over I was torn between waiting a few months to see what happened and just biting the bullet, checking the report, and seeing what was up. In the end, I guess because as a personal finance blogger I'm always reading articles on identity theft and credit reporting errors, I plunked down $10 to check it.

Turns out there is nothing derogatory on the report at all. No late payments, no strange accounts. Nothing. I feel better, but I could have bought a really nice cheeseburger with that $10.

What is the average credit card debt?

When you see an article headlined "The big lie about credit card debt", you have to read it. So I did, and it was interesting. It points out some flaws in the polling system used to calculate credit card debt. The average credit card debt, they say, is $9,300. That does sound pretty high.

What is the real figure? Well, I don't know personally. The article didn't convince me that their method was any better. $2,000 is believable, but then again so is $9,000. I'm not sure what to believe, and I'm not sure it really matters. All that is important is that we are not carrying balances and have no debt. Is comparing ourselves to other's debt any different than comparing the kind of cars we drive, or what features our houses have? If we feel like having $3k in revolving debt because the average is $9k, isn't that "keeping up with the Jones'", and isn't that just as bad?

A fascinating topic would be the average debt, not just card debt. Including mortgage, and especially including car and home equity loans. I have a feeling if we looked at the average auto loan debt and evil home equity loan debt, we'd have a staggering number. Especially when you think of how many people fell for the scam of rolling your debt into a low interest equity loan. When it comes to reducing debt (and your monthly payments) there is only one sure fire way, and that's paying it off!

Swapping money around and consolidating and doing any other "quick fix" scheme is only putting a candy coating on your big fat debt. I say lay it all out, add it up and stare at that number until, like I did, you loath it. When you can finally say "I hate you, and I'm going to pay as much as I can to be rid of you forever," that's when debt repayment really starts to work.

On credit cards and debit cards...

Kilpinger's got a couple interesting articles. This one on credit disclosure reform greatly interested me because I'd been waiting to hear some updates on this particular topic. Here's the official press release from the Federal Reserve. The skinny is that regulators want more information on credit card statements and applications.

Some I am pleased with, others seem like a waste. Forcing them to give 45 days notice, instead of the current 15, before making term changes is pretty important in my opinion. For anyone who carries a balance, 15 days (where the changes would likely take effect the next billing cycle basically) isn't much time to reject the changes and move their debt somewhere else. Disclosing the amount it could cost you if you make only minimum payments (check out the proposed formats here and here) seem a little overboard. I suppose it is necessary for some people, but I want my statement (and my terms) to be simpler and easier to read, not more complex.

Taking out the fictitious "fixed rate" I can get on board with! Okay, give the consumer a penalty rate if they are late or don't pay the minimum. But please, a fixed rate should not be able to be changed just because I start putting smiley faces on the checks I write to you. They can change the rate for any reason, usually determined by some computer that figures out who might show indications of giving them less money (like they did to me, for paying off all my balances). What I also want to see is FULL DISCLOSURE of all terms, especially rewards terms. None of this "further terms will be mailed to you after you have received your card" garbage.

On debit cards, I'm a big fan. I use debit almost exclusively from cash (though I don't spend much because I'm broke). I'm not a fan of the new rewards debit cards because as far as I can see, just about all rewards cards are a complete joke. Their terms are ridiculous and complex and it's usually not worth my time trying to figure out how to maximize them.

Finally, they mention interchange fees. Did you know the fees the merchant is charged is lower if you use debit (pin) rather than credit? I disagree with this:

PIN or pen? Debit-card users are caught in the crossfire between merchants and card companies...From your point of view, it generally boils down to personal preference. To get cash back, you must punch in a PIN.

No, interchange fees are indirectly paid by us, the consumers. If we as consumers use debit more instead of credit, the merchant makes more profit and can lower its prices. See? It's not personal preference, it is better to use debit to purchase goods. Rewards and purchase protections aside, of course.

Update on Interchange fees

Here's an update on the controversial interchange fees, something that I wrote about before.

They say that these fees are a concealed burden on customers because the inflate the price of retail products for all customers.

I have a very simple solution to the whole thing: allow merchants to pass the fee directly to their customers. Make sure they do not charge more than the interchange fee, but just bring it out into the open. Now it no longer burdens those who pay in cash and it opens up competition (because what consumer is going to use Amex that charges them 4% of the transaction when they can use VISA that charges 2%?). Problem solved.

Would you trust the planet to your credit card company?

Your credit card company spends most of its time trying to figure out ways to get more money out of you. Every time I find a mistake, I call to correct them and am treated like a criminal. By the time the mistake is corrected, myself and the CSR are so exhausted from the experience, there are no apologies and only curt goodbyes.

Frankly, I don't trust my credit card company to "do the right thing" unless I'm watching them like a hawk. So would you trust your credit card company with the planet? Me, neither.

But GE thinks you will with their new ecofriendly credit card. I hope someone got a raise when they came up with this idea; "Let's take away people's rebates, encourage them to charge even more on the card, and make them feel good about it!"

So where will your former 1% go?

earmark that amount for projects that reduce greenhouse gases

The whole idea comes from the ridiculous notion that you can buy "carbon footprints". I love these buzzwords! If you are wondering what a carbon footprint is, check out this article. I previously wrote about calculating your carbon footprint. But taking efforts to reduce your carbon footprint is one thing. Buying "credits" to offset your footprint is quite another.

How? In the GE plan:

G.E. will keep a running tally of the amounts, and each Earth Day it will use the total to buy offsets of greenhouse gas emissions. The offsets will be purchased by GE AES Greenhouse Gas Services, a joint venture between GE Energy Financial Services and the AES Corporation, a power company.

So your former cashback rebate ends up buying credits from this company called AES. How exactly this helps is unclear, but GE claims if you spend $750 a month you offset the greenhouse gases of an average person per year. The terms and conditions available do not say either, but they promise to send you more information if you sign up for the card. Gee, thanks. Some information about the AES/GE program ia available if you are curious.

GE AES Greenhouse Gas Services is a joint venture between The AES Corporation and GE Energy Financial Services, a unit of GE. The venture will produce scientifically verified greenhouse gas credits in the United States and market them to companies that want to reduce the environmental impact of their operations or provide environmentally friendly products or services

So as I understand it, you forfeit your rebate, the money GE doesn't give to you it converts to these "credits", which this GGS venture (sells? turns over?) gives to power plants, chemical companies, and other industries that kill the planet in the name of producing cheaper iPods and cars.

I'm still confused, so I go on to the GE-AES website. Finally I found a document that gives some idea of what "projects" my rebate is going to "fund". These projects include: methane gas capture, industrial gas destruction, renewable energy, energy efficiency, and reforestation.

This is all well and good, but I'd be willing to bet you could make a better impact by keeping your rebate, putting it in a high yield savings account to earn interest, and making a charitable donation to the eco-friendly project of your choice. Plus, you'd get a tax deduction. Really, GE isn't doing anything for you that you can't do better with an hour of your time once a year.

Frankly, I don't trust GE financial to properly manage my donation (and that's exactly what this is, a charitable donation for which you do not get to claim). This is the same industry that increased my interest rates because my "spending habits changed" that seemed to indicate "more risk associated with my account." Translation: I stopped carrying balances.

Credit score plummets for no apparent reason

I have a credit card that, through their online service, gives me a Transunion credit score. I've heard the score given through these types of services is not exactly accurate, but it's a complimentary service and sort of act like "credit monitoring".

Now, I'm in a position where I may have to pull my full credit report, despite having just pulled it in February. My score has been around 790 (not great, but acceptable) fairly consistently, yet just this month the new score was reported as 755. Now, I know I just opened a credit card (which I am unfortunately closing since I missed the part where my rebates could only be used for one or two things - things I don't have use for), but that certainly should not account for a 35 point drop.

Most interesting is when I clicked on a link that gives me a generic description of why my credit score is such and such, it has 2 items. The first is that my most recent account is very new. Check. The second is that I have multiple accounts that show late payments or derogatory marks.

Huh?

My only guess is that some company I do business reported a payment as late. I know it's not my credit cards, because I have full account access and can see when payments are posted, and I haven't paid an interest charge in years (my one mistake a couple months ago with making a short payment, it turns out, I was looking at when the billing cycle closed, not when it was due, so I just paid the remainder a day later and of course no interest charge - I was surely having a brain fart that day).

So that leaves me with utilities and a few services. Home security alarm, maybe Sirius radio? I can only think of 2 possibilities.

1) My electric company one month didn't send me a bill. When I knew it should have been due, and didn't have a bill in hand, I called them up and asked them where my bill was. Turns out, they said they mailed it but it never arrived and I was one day late at that point. I had them reissue the bill, paid it, and they removed the late charge. Could they have reported me late?

2) Sirius radio. I have a subscription that automatically deducts from my credit card every 3 months. Out of the blue I get an email from them saying that my account was past due. Confused, I called them up (using the number on my paperwork, not through the email which I immediately suspected was a phisher) and for some reason they just didn't charge my card. The card number was the same, the expiration date was the same; they just decided not to take any money and decided this was my fault. After "updating" my card from the old number to the...same number, they charged it correctly and all was well. Could they have reported me late?

That's all I can think of. Well, I suppose I need to shell out the cash to pay for the report and see just what's going on.

Paying taxes for forgiven debt

Another article on paying taxes on a forgiven debt. Any debt that is forgiven by your lender is considered income. Fortunately most of us won't have to face these kinds of problems. Very few of us are $200,000 in debt. The average credit card debt is only $9k.

What gets me is that you aren't just paying taxes on the money you borrowed and never paid back. I suppose I can understand that, as the lender gets breaks as well when it writes off unrecovered debts. But how much of that "debt" isn't what you borrowed...but just interest and fees? I borrow $5k from the lending company, miss a payment and lose my job, and they write off a balance of $10k after a year because of all the fees. So I pay taxes on 10k instead of 5k? That's a little hard to stomach, especially since default rates and fees are just absurd.

Which makes me wonder, if I borrow $5k and they add a ton of fees and charges to hike up the balance, do they WANT me to pay? What happens when a lender writes of a debt? Tax breaks? At what point does it become more profitable to artificially inflate a bad debt into oblivion and write it off/forgive it rather than spend all the money and time trying to collect the original balance?

Of course it also costs them to issue you a 1099, so they may not even do it if they only "forgive" a few hundred bucks.

Citibank Driver's Edge - Worthless

So much for my 6% for a year rebates! The "cash back" on the Citibank Driver's Edge card can only be used towards new car purchases and vehicle maintenance. I could never spend on maintenance items for what I spend on 6% of my gas purchase (or 3% for that matter). I read the entire terms and agreements - twice, and somehow I missed it. What they sent me in the mail, with my initial cards and my first statement, give no information about "redeeming" the cash back. I also got in the mail a pamphlet about "Thank You" points, but all it talked about was converting my "cash back" into "points". I had no intention of doing that.

How confusing! The sad part is that my mistake has caused me to open up a worthless credit line. So, I've just cut them up and paid it off and will call in the morning to get the address. I'll send a certified letter and cancel the card after it reflects paid in full.

Fortunately I can take the hit on my credit score since I don't plan on financing anything else for...ever. Debt repayment and being debt free is the goal! But you know, I really would like to earn some cash back by using a credit card. I need to do more research it seems, and see if I can find a card that...actually gifts cash back (if anyone can recommend one let me know). A waste of a month, but lesson learned. It cost me nothing, but I earned...nothing.

*sigh*

What if a collector calls you?

What would you do if a collector called you? First, assume that this isn't a case of identity theft or a wrong number. You just got a call from a collector, they say you owe such and such, and you know it to be true. What should you do? Here's what I would do...

1) Don't admit to the debt. Get their phone number, case number, and mailing address. Hang up, ignore all further calls.

1a) If they refuse to give you this information (and many will) just hang up.

2) Pull your credit report. Go to annualcreditreport.com and obtain a copy of your report. There is a section that will show you what agency is after you (usually at the top under "In Collections". If not, you can see what companies probably reported you. Call THEM and find out what agency they sold/outsourced your debt to.

3) Write a certified letter with receipt request to them informing them that they are not permitted to contact you regarding this debt. They can still send letters - that's okay - which is what you want. In my experience, all collectors are scum. Assume every word they say is a lie, you need everything in writing.

4) Write a letter demanding verification of the debt. Write the company directly with a copy of the letter.

5) Pay your debt if you can. You owe it, you should pay it. Write another letter saying you will pay it in full and that they must report the debt as "Paid in Full", or "Paid as Agreed", something similar. Make sure they agree to those terms in writing before giving them any money.

5a) If you can't pay, write to them and tell them what you CAN pay. This may take a few letters back and forth, but eventually you will probably come to some kind of agreement. You are of course keeping copies of all your outgoing and incoming letters, and they are all going out certified with receipt requested.

6) Send them a check, cashiers check if you prefer, of the agreed upon amount.

7) Check your credit report after a month to verify that the debt shows paid. Repeat every month until it does. If it doesn't after a couple of months, write them again with copies of your original letters showing the agreement as well as verification of the payment. Repeat until they comply. If a couple letters don't work, write to the attorney general, bbb, anyone you can think of.

8) If all else fails, get a lawyer. If you can't afford one, and you've already been through steps 1-7 and somewhere along the line they decided to break the law and violate their agreement, you can always file in small claims court. Sue em. It costs you around $35 depending on the county. As long as you have all your documentation, any sane judge should rule in your favor. I'd even ask for loss in wages and court filing fees, though I wouldn't expect it.

Getting a debt settled with a collection agency isn't easy, and isn't quick. The problem is that so many of them generally screw people over on a regular basis. So you need to do everything by snail certified mail, so it will take a while (maybe a few months) just to get to the part where you actually agree to pay them something. This is okay. If you are trying to buy something (like a house) and instead finding yourself dealing with collectors, don't sell yourself out and open yourself open to being screwed by going the easy route and giving them a credit card number over the phone to pay them and assume everything will be hunky dory. Just wait to finance that whatever.

Dispute your credit report

If you don't know where to start to dispute an item on your credit report, here's some helpful tips from Bankrate. First, get your report from annualcreditreport.com and get it nowhere else. All the other sites are, frankly, just trying to sign you up for some service or another. annualcreditreport.com is the only way to get a true free credit report.

Bankrate lists 5 ways to dispute your report:

1. Do it yourself
2. Hire a repair agency
3. See a credit counselor
4. Hire an attorney
5. Work with a reseller

That looks pretty scary, but I seriously doubt it will take more than step 1 to get it fixed, although you may have to try it a couple of times and it may take a while. Agencies really don't do anything that you can't do yourself for free.


They recommend 3 ways to do it yourself: by certified mail, by phone, and online. I think your only choice here is between phone and online. You must send a dispute by certified mail (with receipt) and retain a copy of your letter. Otherwise you are just blowing hot air and have no proof of the dispute! Paying for the certified mail and the receipt is well worth it. If you want to call them or do something online with them, fine, but the physical mailing is a necessity. If you don't know what to send them, bankrate offers a letter template that you can easily fill out. You can copy/paste it from here:

Credit Agency Name
Credit Agency Address
Re: Credit report error

Dear Sir or Madam:

I have discovered inaccurate information on my credit report maintained by credit agency name. The report is in my name -- enter your full name here -- and my Social Security number is enter your Social Security number here.

Enclosed, please find a copy of my credit report containing the mistaken data. I have highlighted the errors. Specifically, the following information is incorrect:

(Copy and paste as necessary)
Company name:
Account number:

Incorrect information:


This is incorrect because:


Please investigate this matter with the creditor in question and you should find there is an error. When that is confirmed, please remove this error from my credit report.

In addition, please make this letter a permanent part of my credit record.
If you have any questions about my request or the credit information in question, please do not hesitate to call me at -enter your phone number here-.
Thank you for your prompt attention to my request.


Your Signature
Your Typed Name
Your Address
City, State and ZIP Code

Enclosure: credit report

Here are the addresses of the 3 CRAs.

TransUnion Consumer Solutions
P.O. Box 2000
Chester, PA 19022-2000

Experian
National Consumer Assistance Center
P.O. Box 2002
Allen, TX 75013

Equifax Information Services LLC
P.O. Box 740256
Atlanta, GA 30374

Of course, continue checking your credit report once a year to make sure it stays off your report for good. For more information, check out the article.

Interchange fees House hearing scheduled

Triston from unfaircreditcardfees.com has commented that there is a house meeting scheduled for July 19 on interchange fees. Check the weekly schedule in a couple of weeks to see when this is going to be discussed. The House Financial Service Committee website also hosts a live webcast service, so we may be able to watch this live. Very interesting!