Credit/Debt Recovery

Reader-to-reader advice on credit card debt

This is the kind of feature I love: the Orlando Sentinel recently ran this "Reader to reader" article wherein the Sentinel's readers offer advice on how to control credit card debt. There's practical, sensible advice here that industry professionals like me often overlook when helping our clients.

The first respondent suggests treating credit cards like checks, recording each transaction in a checkbok register, charging only as much as you've got in your bank account. You might ask your bank if they've got a small register for debit cards; I got one years ago from Bank of America for my debit card, and I used to show it in seminars to promote the idea.

(These things are all over the place at promotional tchotchke dealers: Here, here, and here.)

There's also a comment section--look in the "Talk About It" box on the right-hand side of the page--where other readers submit quick tips, and the consensus seems to be "don't use credit at all if you can get away with it." And if you must use credit, one or two credit cards are all any consumer really needs.

Good advice for coping with debt is everywhere; the trick is to understand that not all advice will work for everyone, and try to find the suggestions that will work best for you.

Television Review, part 2

A long time ago, I offered a brief television review of Food Network's "Good Deal With Dave Lieberman." Here's a link to my earlier review, and Here's a link to the show's site at foodnetwork.com.

As I promised in my original review, I revisited the show (I'm sorry it took this long to get around to doing that). After watching a few episodes, this time around, I had a much more favorable impression. Liberman did a great job of staying budget-conscious, even giving the viewer hard numbers and cooking techniques to help illustrate how to save money. He also figured up what the meal would cost per person, which is especially helpful to people who are used to buying meals at the drive-through and don't think they can cook for themselves for less.

I can recommend the show to people who are looking for ways to save on their food budgets; and now that the show's been on for a while, there are plenty of reruns and recipes from which to choose.

The only reservation I have left is slight; some of the recipes seemed like they might take a bit more time to prepare than some people have. Ultimately, though, it's worth it to spend a bit more time in the kitchen if that means saving some money on food shopping and dining out (not to mention the health benefits of home-cooked food over fast food). I hope everyone who's working hard to create a budget and stick to it will check out this show and use it to help meet those budgetary goals.

I feel bad about talking down the show when it first aired, but it has definitely improved since then. I'll keep watching, and hopefully prepare a recipe or two and post how it turns out.

BK Reform - skipping counseling

I've learned that under BAPCPA, a bankruptcy filer who doesn't get the required credit counseling session will see his/her bankruptcy petition "stricken." There is no dismissal, since under the law, there is no case in the first place. (You don't begin to qualify for bankruptcy until you've completed the counseling session.) This is important, because there is an automatic stay in cases where a prior bankruptcy filing attempt was dismissed.

This is regarded as consumer-friendly news, and I take it as further confirmation that the sky isn't falling when it comes to bankruptcy reform.

On a similar note, Elizabeth Warren weighed in on last week's Washington Post article, and I don't know why I bother responding, but regarding the credit counseling requirement, she said:
"The idea was to pressure those who could repay their debts into debt management plans and away from bankruptcy."
I'll say it again: I supported reform, and I never had that idea. Credit counseling was about education, not diverting a substantial number of filers to DMPs. Really a very small number of BK filers don't qualify under the new rules. I expected this, since I never considered bankruptcy filers "a bunch of deadbeats." They're people who need help, and they're getting it, more than ever before.

I still find it odd that BK opponents said for months that the bill would keep middle class Americans from getting bankruptcy, and seniors would eat dog food, and so forth... now, by their own admission, almost every one of the people going through pre-BK counseling qualifies for Chapter 7 under the new rules. And somehow that represents some sort of failure? I don't get it. I'm sure the anti-BAPCPA crowd hates being wrong, but shouldn't they be glad that deserving consumers are getting the bankruptcy protection they need?

The bottom line is, they're looking at credit counseling all wrong. It's an end unto itself. One doesn't need to proceed to a DMP to benefit from a credit counseling session; there are studies out there that confirm this. Traditionally, credit counselors put 30% of the consumers they see on DMPs. The other 70% just got counseling, and that was okay. People with credit counseling backgrounds know these numbers, so when we hear that most of the pre-petition counseling doesn't lead to DMPs, we don't see that as bad news. On the contrary; it's reassuring, because it shows that BAPCPA wasn't as poorly constructed as its oppenents claimed.

Class action against myfico.com

A lawsuit has been filed against Fair Isaac and myfico.com under the Credit Repair Organizations Act.

You'll notice I have a link to myfico on my "links" sidebar. I'm a supporter of Fair Isaac, and I'm on their side in this lawsuit, which I consider frivolous.

The suit concerns "Suze Orman's FICO® Kit": (link)

The plaintiff alleges that since the product in question helps one potentially improve his/her credit score, then Fair Isaac is legally a "Credit Repair Organization" because they offer that product on their website.

I could see how this (apallingly dumb) argument could be made, but I can't imagine it will be made successfully. The Suze Orman FICO Kit is a product, not a service, and even though the language of the CROA seems to support this kind of backward thinking, if the courts agree with the plaintiff's interpretation, then anyone who offers any kind of advice to help consumers improve their credit (like I do on this blog or in my book) could be considered a "Credit Repair Organization" and also sued.

Under CROA, a credit repair organization is "any person who uses any instrumentality of interstate commerce or the mails to sell, provide or perform (or represent that such person can or will sell, provide, or perform) any service, in return for the payment of money or other valuable consideration, for the purpose or implied purpose of (i) improving any consumer's credit record, credit history, or credit rating; (ii) or providing advice or assistance to any consumer with regard to any activity or service described in clause (i)"

Further, credit repair organization may not charge money for performing said services before such services are fully performed.

So think about it. You buy my book from half.com or ebay , and my book offers "advice" with regard to improving your "credit record, credit history, or credit rating..." and since you probably don't live in the same state as the ebay seller, according to the reasoning of this lawsuit's plaintiff, the ebay seller is a credit repair organization under CROA. And they can't charge you for the book until you get it and use its advice to improve your credit. It's nonsense.

I'm no lawyer, but I'm totally on Fair Isaac's side on this lawsuit. I'm having trouble finding more information about it online, but I'll follow it as best I can and blog what I find here.

Sad story about basic literacy skills

This story has been everywhere over the past couple of days, including my hometown paper:(Link)

Sadly, I'm not surprised to learn that a majority of college students can't intelligently compare credit card offers. I've done a fair amount of speaking on college campuses and at high schools, and the college kids usually have enough questions to keep me there all day, while the high school kids couldn't be more bored. (I know the study referenced in the story is about more than just credit, and really encompasses basic literacy, but the part about credit caught my attention, for obvious reasons.)

Looks like I have more work to do. In case you're among the majority of people who need help understanding credit card offers, here's an article from SmartMoney.com that's pretty good.

More on food spending

A few days ago I posted about food spending. Here's a column from the Morning Call Online that makes the case more persuasively than I could. And it's got some interesting statistics that should help you get some perspective on what your grocery bill is really costing you.

Bankruptcy Reform Failed?

More missing the point from the WORM (worn-out reactionary media) when it comes to bankruptcy reform.

Today in the Washington Post, "Bankruptcy Counseling Law Doesn't Deter Filings," takes a narrow and one-sided view of the situation and mis-represents what's currently going on in credit counseling.

The basic angle of the story is that BK reform has been a failure, and even the credit counselors involved in pre-discharge counseling are saying so.

That's misleading at best. The system isn't failing, and the credit counseling requirement of BK reform isn't a bad idea.

It turns out that since bankruptcy reform went into effect late last year, not many people have been diverted from bankruptcy into Debt Management Plans. The Post takes that to mean that BK Reform is a failure. That's odd, considering the big rallying cry from BK Reform oppenents was that "working families would be denied the bankruptcy protection they need." According to this story, those predictions were way off base.

In fact, I said all along that not many people would be diverted from bankruptcy under the new rules. I supported BK reform because every filer would have to get budget counseling and education, which is not addressed at all in this article. Just because a person has to file bankruptcy in the end doesn't mean the counseling and education doesn't help them. How can we call the reforms a failure if we only look at the statistics on how many proceed to a Chapter 7 filing?

The Post article says the law's supporters "envisioned" that debtors would use repayment plans instead of bankruptcy. I never "envisioned" that. What I expected is precisely what is happening; everyone who needs bankruptcy is still getting it, and they're getting valuable counseling and education in the process. Where's the problem in that?

And finally, (and I almost hesitate to get into this here) the article completely misses a huge part of this story. Credit counselors don't dare try to convert bankruptcy filers into Debt Management Plans; if they do, they know that large groups of bankruptcy lawyers are ready to refer their clients elsewhere, or worse, file lawsuits against them. Why swim in those shark-infested waters? Better provide quality budget counseling and education, and send the client back to his/her attorney for proper legal advice.

I'm having a hard time figuring out who's really hurt by this. Everyone who needs bankruptcy is getting it. Bankruptcy lawyers essentially control credit counseling now, and the non-profit counselors are getting to help more people than ever. If I had to pick a loser, I'd say the creditors spent a lot of money to get this law that doesn't change things much on their end (counseling and education being good for consumers, but that's not helping creditors' bottom lines).

And the anti-bk reform voices in the WORM and and the blogosphere need to reconfigure their attacks (yet again). "People won't have access to bankruptcy" is dead as an argument. (It was always DOA, as far as I was concerned.)

Save on food spending

The best thing I can do for people who are struggling to overcome their debt burdens is help them with a budget. There are no shortcuts or magic tricks; diligence and a good spending plan are the best weapons when trying to knock out your debt.

Without a doubt, my food budget is the biggest problem I have. I can't seem to get out of the grocery store without spending $50 or $100, and the trip is usually poorly planned.

I survived on ramen noodles and oatmeal through the college years, so there's no reason I shouldn't be able to reduce my food spending for a while until my finances are in order. Does that statement ring true for you, too? If so, spend some time thinking about your budget and grocery shopping habits. There are hundreds of resources right in front of you on the internet.

Today I'll point to just one, a blog: Tammy Olson's "The Practical Pantry." Start with this post about preparing inexpensive post-holiday meals. Whether you're concerned about holiday-related bills like Tammy, or preparing to pay your income taxes like me, any advice that helps you reduce your food budget is good advice.

Obsessive Consumption Updated!

Obsessive Consumption has a great new site design for the new year. If you haven't been to Kate's site in a while, I renew my strong encouragement that you do so.

Her new "OC Store" isn't up yet, so bookmark it and go back often.

I've said it before and it's still true: Kate's art is thought-provoking, and if you shop in this country, relevant.

Using Credit Cards to Start a Business

... is a risky idea.

I know lots of people do it: this story from MSNBC says "credit cards are among the most popular sources of startup financing" for small businesses.

And I know lots of businesses have started on the back of credit card debt and gone on to great success; I just can't help but consider that a form of gambling that happened to pay off in some cases.

Starting a business is a serious matter. It takes careful planning and diligent saving. If you're borrowing on a personal credit card to prop up your business, maybe you're not completely ready to manage your startup. As the child of small business owners, (who probably used credit cards for financing in the early days, admittedly) I support anyone who wants to go into business for him/herself. I'd like to see small businesses succeed without making a pact with the devil credit card companies.

Here's a better place to start.