Jeff Michael: Repair Your Credit and Knock Out Your Debt
I highly recommend this book because I wrote it.
Edie Milligan: Tips from the Top: Targeted Advice from America's Top Money Minds
I have about a dozen entries in this book.
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A friend pointed me to this blog post from Susie of the Internet Security Zone Blog. It's important for anyone considering a credit freeze to read her story.
In brief, if you freeze your credit, you'll be given a PIN by the credit bureau that will allow you to un-freeze your credit later. If you lose or forget that PIN, you're screwed.
In this article of interesting facts we learned in 2006, this fact came in at #27:
Of the 10 percent of U.S. teens who uses credit cards, 15.7 percent are making the minimum payment each month.
Parents, if you have teenagers with credit cards, urge them to always pay more than the minimum. The good news is most minimum payments went up this year, so making the minimums means being in debt for 10-15 years rather than 30. Still, the best policy is to pay off the credit card balance in full every month.
Oh, and if your teen is one of the 90% who doesn't use credit cards, consider helping him or her set up a secured credit card. They have to learn to use credit somewhere, and it's not the schools' job to teach them; it's yours.
I'm looking over AADMO's comments on the Deleware Uniform Debt Managment Act. (It's their version of the Uniform Debt Management Services Act, more unnecessary crap legislation that's spreading from state to state like a virus.) In their comments, AADMO thoroughly shreds this poorly written law in one area after another.
As usual the legislation is vague, leaving itself open to any number of false interpretations that will serve only to enrich some lawyer (or "consumer advocate"). Nothing in the act seems designed to help consumers who need help with their debts; it only seeks to regulate the debt management industry.
Because this legislation was pushed for by "consumer advocates" who think debt management should ONLY equal bankruptcy, and written by lawmakers who have no idea what credit counseling is or how it works, the law gets virtually everything wrong.
The biggest issue of the many that AADMO raises here has to do with successful completions. The act requires an agency to report how many successfully completed debt management plans they have each year. This was surely inserted at the behest of a "consumer advocate"; a lot of hay is made of successful completions by credit counseling opponents. Traditionally only 30% of those counseled go on to be enrolled in a Debt Management Plan. Does that mean the 70% who just get counseling aren't "successful"? Of course not. A lot of people simply benefit from the counseling itself. Whether it's the budgeting and education they receive, or being "scared straight" by the threat of losing access to their credit cards, or simply talking to a counselor about their debts together with their spouse, counseling alone is proven to help consumers in debt. Then a portion of those who don't enter a DMP will be counseled to declare bankruptcy. Believe me, the "consumer advocates" who are behind the UDMSA don't consider bankruptcy to be anything other than a success.
And sure, bankruptcy does offer relief to overburdened consumers. It is one way to successfully deal with crushing debts. But it's far from the best option.
The point is, asking how many clients successfully complete a DMP already severely deflates the numbers of people a counseling agency helps, at least by 70%. Then when you look within the ranks of DMP clients, you find even more disparity. DMPs are set up to last 48-60 months, but a lot of clients leave the DMP before then. Some do fail and declare bankruptcy (which in this context I do consider 'failure' even though the "consumer advocates" behind the UDMSA support bankruptcy as the first choice for consumers in debt). Some DMP clients see their situation improve and decide to handle their debts on their own. It's difficult to live in this country without credit cards, which all DMP clients must do. A lot of people, as soon as they have their debts down to manageable levels, will leave the DMP so they can go back to having access to credit. Is this success or failure?
Virtually no two Debt Management Plans proceed in exactly the same way. It's quite impossible to impose one standard of success on all of them, and the Uniform Debt Management Act and its authors clearly don't have any understanding of the industry they're attempting to regulate.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 included a provision that made it unlawful for attorneys to counsel clients to incur more debts before declaring bankruptcy. Lawyers have been hollering about that and every other part of the law since it was passed.
Now they've won a victory, for the moment, as a District Court Judge has ruled that the law "forbids truthful and possibly efficacious advice" and constitutes a violation of the first amendment.
Now, some perspective on this. The clause was included to close a potential loophole in the reform. If a client is found through means testing to be ineligible for bankruptcy protection (which very rarely happens) the client could simply go out and incur new debt that would put them over the required amount to pass means testing and be allowed to file Chapter 7. They'd merely have to wait 90 days or something like that so the new debts wouldn't be so recent as to be exempt from the bankruptcy filing. The easiest way would be to get a new car loan that puts the debtor's monthly debt payments over the top.
Preventing lawyers from counseling this action doesn't necessarily prevent it the client from doing it, but it was intended to curb potential abuses (hence "Bankrupcty Abuse Prevention and...etc.")
What do I think? It's unconstitutional, sure. The government can't regulate what lawyers say to their clients, unless they are actively committing fraud.
However, realize that the behavior we're talking about is totally unethical. We're talking about either counseling someone to incur a new debt that they have no intention of repaying, or incurring a new debt that they might repay, solely to get out of paying other debts they legitimately owe. It's one thing to seek bankruptcy relief when you've had the IRS or a nasty divorce wreck your life. But to deliberately max out credit cards or take out a new car loan specifically to gain access to bankruptcy (after means testing has determined that you can repay your debts after all) is exactly the kind of abuse the law was intended to prevent.
The judge writes that "if [this law] is the government's view of legal ethics, it is a form of ethics unfamiliar to the court." Really? You don't get how counseling clients to rip off lenders is unethical?
But the bottom line is, the first amendment gives people the right to say and do some odious, unethical things, and counseling your clients to cheat the system is included in that.
Similarly, the law's provisions that govern what attorneys may say in their advertisements are probably unconstitutional. Funny how governement regulation of advertising when it's done by the FDA is okay, but when BK attorneys get regulated, they suddenly remember the constitution.
[HT Bizzyblog, who disagrees with me on BK Reform but still deserves your vote here.]
Insurance is outside my area of expertise, but I'm trying to educate myself as much as possible about it. It's an important part of anyone's personal financial picture.
The problem is, insurance seems like a big scam. In the last 15 years, I've filed one claim with my auto insurer, and they "adjusted" it pretty aggressively against me. It's as if the assumption going in is that both parties--the insurer and the insured--are out to scam each other, and it's just a test of wills. So when the customer is honest right out the gate (and I'm sure most of us are), the insurer wins every time.
The thing is, we're not used to dealing with insurance adjusters if we haven't filed a lot of claims. So we don't get that it's war; the adjuster is our enemy, and he's out to get us.
Spend five minutes with Google reading about how all the major insurance companies treated the victims of hurricane Katrina, and you'll see what I mean.
Here's an article from my hometown paper about insurance complaints. After analying 35 million records, they're claiming it's the most comprehensive survey of national databases ever done.
There's some talk in the article about insurers using credit scores to set insurance rates. They've been doing this more and more over the past decade, as they claim the credit score is a better indicator of whether the client will file a claim. I don't buy it, myself.
"Consumer groups" are claiming it's the new redlining; that using credit scores in this manner allows the insurance company to discriminate against minorities. That's bunk; credit scores have absolutely nothing to do with race. Insurance companies do discriminate based on zip code and credit history... that rigs the game against anyone with a lower income, no matter what minority group they might belong to.
Insurance is a necessity, unfortunately. But don't expect to be treated well when you're on the bottom of the pyramid scheme. When it happens that you need them and they inevitably let you down, be ready to fight and file complaints if you have to. Read the last line of the article I linked, and "stay after them."
Bizzyblog's Tom Blumer posts about a nutty idea from Michigan Senator Carl Levin, who wants the FTC to give cards a rating of "red, yellow, or green" to give the consumer an idea of how 'safe' the card is to use. It's a dopey idea for the reasons Tom gives, plus it's completely useless. I can show you consumers who've gotten in way too deep with a "green" credit card, and others who have been perfectly happy with "red" cards. Slapping a color-coded warning label on a card will do nothing to educate consumers about better borrowing behavior. Credit cards aren't that hard to use if the terms of the agreement are clear and honestly stated up front.
Sorry, I'm going to get political for a few sentences... this is what government thinks of you; they think you're a stone imbecile who needs a simple color-coded scheme to tell you how to borrow money. One day they'll make Garanimals mandatory.
My last post referenced an article in the ABI update newsletter. Now it's been put online here, and there's another story in there people should pay attention to.
The second brief, "Democrats' Proposal On College Loans May Face Funding Problems," shows the danger of letting economic policy be set by people who don't understand economics.
They want to make higher education more affordable. Fine. Do something to address the skyrocketing cost of tuition. But lowering loan rates student loans simply shifts the burden to taxpayers while giving colleges every incentive to increase tuition costs further. The taxpayer-subsidized student loans are the reason college has gotten so expensive in the first place.
Student loan debt is a big part of the picture when it comes to my work, and it's exempt from bankruptcy and debt management plans. The problem is, too many students have been told a big lie all of their lives; just go to college, and everything will be great. Once you have that piece of paper, there will be a great job waiting for you when you graduate.
I've seen more people mired in debt because they fell for that lie... they borrow what they must to get through college (and not just tuition; a lot of student loan dollars go toward rent and food), then emerge with their degree thinking the great life they were promised will be close at hand. And when it doesn't happen right away, they turn to credit cards to get by. Thus the student loans were just the beginning of a spiral into debt that will last the borrower the rest of his/her life.
The truth is, a college degree doesn't mean as much today as it once did. Even the fancy $20k per year college doesn't do as much for you as you've been told. I really do believe the "just get a degree" crowd (which includes 90% of the teachers I had) doesn't care if you get mired in debt for life, since that's a constant incentive to stay in your box and be a productive citizen. If you're free from debt, you might actually have time to think for yourself, and that's no good for the academic intelligentsia.
I don't know how this post got so far off the rails; sorry about that. Bottom line is, lowering student loan rates will ultimately just make college more expensive, offsetting the benefit of this latest scheme. It's just not the answer.
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