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House Poor in Canada

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It’s a commonly-held belief that Canadians make it a priority to pay for shelter costs ahead of other household spending. Mortgage payments and utilities typically receive more attention than transportation, clothes, and entertainment. First things first: we need a roof over our heads, we need running water, and we need the lights to be on.

It’s a commendable trait in many ways – our home will likely be the largest asset we ever own, and falling behind on mortgage payments will put that asset, along with our credit profile and entire financial outlook, into jeopardy.

But what happens when our prioritized spending creates a burden that is too heavy to bear? If we remain fixated on paying our housing bills, what happens to our other necessary expenses?

The Canada Mortgage and Housing Corporation (CMHC) measures housing affordability by setting a threshold of 30 per cent of your income – if you are spending more than that on your monthly housing costs, you’re spending too much. Consolidated Credit actually recommends a lower percentage at 25 per cent.

Despite this, Statistics Canada’s National Household Survey found the following:

• About one in four households (25.2%, or 3.3 million) spent more than the CMHC-recommended amount.
• Of the homeowners that exceeded the threshold, they spent an average of $1,259 per month, which Statscan says represents an average of $510 greater than the 30 per cent limit.

These numbers suggest that those 3.3 million households are not just exceeding the limit – they’re obliterating it. And it begs the question: how are they making ends meet?

I fear that Canadians are covering basic living expenses by leaning on credit.

My organization has helped hundreds of thousands of Canadians with debt, and it is not uncommon for us to get calls from people who are doing everything they can to keep their homes, even if it means going into debt and paying high interest rates to pay for everything else.

I’ve got news for you: if you’re paying for your housing by shifting other costs of living over to your credit card, you’ve created a false sense of financial well-being and you are living beyond your means.

What are a few steps to take to recalibrate your spending priorities?

Wants and needs.

Yes, housing is extremely important, but it’s not the be-all-and-end-all. Go through your credit card and bank statements, look at what you’re spending money on, and divide everything into two categories: “wants” and “needs”. If a long list of “wants” (cable TV, restaurant meals, entertainment, etc.) are pushing you into the red, making a couple of cuts will go a long way in bringing you back to black. But if gigantic housing costs mean that “needs” alone are exceeding your income, you might be in serious trouble.

Track your spending.

It’s one thing to adjust your budget and it’s another thing to actually adhere to the changes that you make. Keep yourself honest and use a budgeting app for your mobile phone so that you can track your spending on-the-go.

Keep your savings alive.

You may be making your mortgage payments, and you may be paying all of your monthly bills. But are you contributing to your savings? Your savings account is truly your financial barometer – if you can’t make regular contributions, it probably means that you are stretched too thin. But your savings account is much more than a simple metric of your financial health – it also serves as a financial lifesaver in the face of sudden job loss, illness, or any other of life’s little financial surprises.

Downsize your house if you need to.

The most obvious piece of advice is also the most heartbreaking to many people. If you can’t afford your house, you can’t afford your house. So many people have emotional connections to their homes, so it is easy to understand why they would fight so hard to hang on. But moving to a less-expensive property is at least worth some consideration. Cashing in on some of your home’s equity might just square your finances and eliminate your financial stress. And remember that nothing is forever – a step backwards is temporary and you have plenty of time to build a sustainable path back to your dream home.

Women are not talking about money – here is why

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A recent study by Fidelity Investments has uncovered some intriguing paradoxes about women’s relationship with money.

Despite the fact that 92 percent of the women involved in the study want to learn more about financial planning, and 83 percent want to get more involved in their finances in the next year, a whopping 80 percent admitted that they have refrained from discussing money with family and friends.

In addition, only 47 percent feel confident when talking about finances with a financial professional—compared to 77 percent who would be comfortable discussing medical issues with their doctor.

Where does this disconnect come from? Why are women eager to learn more about money, and yet reluctant to discuss it?

Fidelity’s study found that there are some common factors that make women closemouthed about financial topics: privacy worries and lack of confidence.

Privacy Worries

56 percent of respondents who have refrained from discussing finances with friends or family kept mum because money was “too personal,” while 35 percent didn’t want to share financial information with those they were close to, and 27 percent were raised not to discuss finances.

In addition, 32 percent of women feel uncomfortable discussing money, and 16 percent feel that the issue is taboo. 26 percent claim that the topic never comes up in conversation.

In short, it’s really tough to talk about money when we are socialized to keep this kind of information private.

Of all the reasons why we do not discuss finances, this is one of the most difficult to overcome. We worry that talking about money will make us vulnerable, make someone feel bad, or simply cross a tacit societal boundary—and those worries are not without merit.

So how do women overcome their financial reticence? Fidelity makes a couple of excellent suggestions for introducing financial conversations into your life without feeling overexposed:

  1. Find a Financial “Buddy”:By making time on a regular basis to discuss financial matters with a trust-worthy friend, family member, mentor or financial expert, tackling financial goals can become less overwhelming and more attainable. In the same way that “gym buddies” keep each other motivated, financial confidantes can help both parties make progress and stay accountable.
  1. Join an Online Conversation:Take advantage of online conversations with other women looking to get more involved in their finances, as well as experts providing insights and guidance.

Both of these options allow those who are interested in becoming more financially proficient to start and join conversations without feeling exposed.

Why aren't women talking about money?

Lack of Confidence

In addition to privacy concerns, women often have difficulty talking about money because they assume they do not know enough about the subject. 14 percent of respondents worry that talking about money would be a waste of time and 10 percent feel as though they do not understand finances well enough to talk intelligently about it.

According to Kathy Murphy, president of Fidelity’s Personal Investing:

“Beneath women’s reticence to talk about money lies a lack of confidence in their knowledge of financial planning and investing. This lack of confidence is really self-imposed. Our analysis of more than 12 million investors shows that women actually demonstrated stronger saving rates than their male counterparts and enjoyed better long-term investment performance when they did engage. Unfortunately, too many women still hesitate to take control of their finances.”

That confidence gap can feel like a Catch-22: you feel foolish for not knowing things, but asking questions feels too intimidating. So you continue worrying in silence and assuming you don’t know enough to talk intelligently.

But women have mastered many important money skills that they often tend to discount. According to Fidelity’s study, 82 percent of women are confident in managing their day-to-day budgets, and 74 percent are proactive about saving for the future. Women who are hesitant about making investment decisions simply need to build on the financial skill set they already have. Fidelity suggests several ways to do so:

  1. Kick-Start Your Financial Education at Your Own Pace:There are numerous tools, tips and reference materials online which can help women boost their financial knowledge to the next level.
  1. Take Advantage of Workplace Retirement Guidance:Many employers offer on-site financial workshops and guidance, yet the study shows that sixty-five percent of women are not taking advantage of retirement guidance made available to them through their workplace plan provider. Check if your employer offers onsite financial workshops or 1:1 guidance, sign up if available, or contact a financial services provider directly.
  1. Work with an Expert:A financial professional can be a valuable resource to turn to with questions and to help build a roadmap for the future. When choosing an adviser, look for a good listener who communicates clearly about fees, professional designations, and investment advice. Interview the adviser before you make a commitment, to make sure you are comfortable and can build strong working relationship.

Take Action

The good news is that women are poised to take charge of their financial lives. Fidelity has shown that the majority of women already have great self-discipline when it comes to saving for the future—and they can apply that discipline to investing. According to Murphy, “The key is to take action now to ensure that your money is working just as hard as you do, so you can achieve the goals and live the life you deserve.”

This article by Emily Guy Birken first appeared on PT Money and was distributed by the Personal Finance Syndication Network.


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What to do When Struggling or Late with Credit Card Payments

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I generally begin any debt relief consultation I do with people who reach out to my company in search of help with credit card debt with this question:

“What has you reaching out to a perfect stranger? What is going on with you financially”? Then, I shut up and listen. I am sometimes the first person the caller has ever spoken to about the situation they are in.

The responses I hear vary, as does the time someone will take to outline the details of their hardship. By listening closely, I am able to hear the stress and fear they have about their credit card debt. I often hear the struggles they have gone through to try and keep current with credit card bills, or the difficulty they have had in communicating with creditors and collectors.

The other day, I heard one of the simplest and shortest answers to my initial question that I have had to date.

“My Debt Is Crippling Me.”

While this response does not provide details I generally look to key off of in order to identify the debt pieces or solutions to putting the person’s financial puzzle back together, it said a great deal in a very powerful way.

Struggles with debt and credit can feel crippling.

Overwhelming debt debilitates in the same sense that someone with a physical disability is forced to deal with every day of their lives. The stress and fear with credit card debt problems can often manifest into actual maladies. The worry and frustration about bills, and the lack of money, carries over from one day to the next. What am I going to do at the end of the month when these other bills are due? When will I ever be out of credit card debt? How did I get trapped in a home now worth far less than I owe? What if I get laid off with no savings? How would I get by with maxed out credit cards and no income?

One of the overwhelming benefits to people we talk with is that we can reduce, or even remove the stress and fear they have about their debt problem in one phone call. How do we do that?

For most debt problems, there is a debt relief solution.

This gentleman did not feel crippled when we finished talking about his problem because I plainly laid out the facts of his finances (after several additional questions to be sure), and was able to point out to him the mathematical rational solution to his debt. His solution did not involve needing to engage my company for a product or service, as he was past the point of debt settlement or a creditor sponsored hardship plan being a viable option.

He learned that, unlike someone who has a physical disability for the rest of their life, his crippling debt could actually be cured and with little fuss or expense. He was not at all excited to know that his only real option was to file for chapter 7 bankruptcy, but he saw the wisdom in doing so and hung up the phone with no fear and less stress.

I asked him before we hung up from the call “How crippling is your debt now?”.
He replied “Not at all.”

5 debt management tools that can provide a solution.

There is nearly always an answer to recover from debt. The answers do often involve tough choices and some action steps that are not exactly a thrill to take, but can be arrived at through the process of elimination. Generally, I can walk through the following things and eliminate 3 or 4 out of the 5:

  1. Monthly payment concessions through hardship plans.
  2. Debt Management Plans through a credit counseling service.
  3. Bankruptcy.
  4. Debt Settlement.
  5. Doing nothing (sometimes the right thing for brief period – couple months).

Knowledge removes the fear of the unknown, and unemotional, boring, old arithmetic is the compass to find your way to healthier finances.

My advice to anyone feeling crippled by credit card and other debt boils down to the “Four Gets”:

  1. Get real about your finances;
  2. Get informed about your debt relief options;
  3. Get a plan in place; and
  4. Get started

Putting an end to dead debt, bogus collection fees and lawsuits FDCPA

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The Consumers Union, a long standing consumer advocate and watch group, in partnership with East Bay Community Law Center, weighed in with their recommendations for amending the Fair Debt Collection Practices Act (FDCPA).

Read the report here: Why Debt Collection Practices and the Debt Buying Industry Need Reform Now.

In their “PAST DUE” report, I found some of the most pro consumer recommendations for amending state and federal collection laws I have seen to date. Here are some of the key recommendations the report suggests should be adopted in order to better protect consumers and lessen the drain on publicly funded court resources:

The FDCPA and parallel state fair debt collection laws must be expanded so that the list of required “baseline” items also includes: (6) a statement explaining the consumer’s rights under the FDPCA; (7) the name of the original creditor, whether or not the consumer requests it; and (8) an itemization of the total principal, interest, fees and other charges that were added to the debt:

“Baseline” Information (currently required)

1. Amount of debt;

2. Name of creditor;

3. Statement re: assumption of debt validity in the absence of a dispute;

4. Statement re: if the debt is disputed the debt collector will “verify”; and

5. Statement re: upon written request the collector will provide name of original creditor if different from current creditor.

Recommended Additional “Baseline” Information

6. Statement notifying consumers of two significant rights they have under the FDCPA;

7. Name of original creditor; and

8. Itemization of: total principal, interest, fees and other charges that have been added to the debt.

The report recommends additions of items 6 though 8 to the already required baseline protections found in items 1-5. While I see recommendations 6 and 7 as good, I really like number 8! It is of major importance that there be an opportunity for consumers who find themselves in a position to effectively bounce back from past financial setbacks be able to do so with a correct measure of what they legitimately owe.

All too often highly inflated and sometimes bogus debt collector fees.

The report further identifies what is dubbed “Baseline Plus“recommendations:

The FDCPA and parallel state fair debt collection laws should also be amended to require that debt collectors make a good faith effort to retain certain “baseline plus” information to the extent possible. A debt collector should be required to provide all “baseline plus” information it has to the consumer within five days after their first communication. Courts should also require that all available “baseline plus” information be attached to any complaint in a debt collection lawsuit:

Recommended “Baseline Plus” Information

9. Proof of indebtedness signed by the consumer;

10. Date that debt was incurred and date of last payment;

11. Chain of title if debt has been sold;

12. Original debt;

13. Each payment credited to the debt;

14. Each fee and charge added to the debt;

15. Each payment credited against those fees and charges;

16. All other debits or charges to the account; and

17. Explanation of the nature of those fees, charges, debits, and all other credits to the debt, by source and amount

Item 9 will be hard to come by if asking for a wet ink signature due to the prominence of electronic acceptance of terms and internet applications for credit.

Numbers 10, 11, 12, 14 & 17 would certainly put the nail in the coffin of most zombie debt that exists today. It would also crimp the reselling of portfolios of bad debt that had already been sold at least once prior to the enactment date of  any future legislation that includes these, or similar provisions.

None of this is a bad thing.

The report discusses the drain on court resources around the country resulting from debt collection lawsuits that are filed mill style and shows how the collection of unsecured debt has its own “robo signing” issues similar to the well published woes of foreclosure mill law firms across the country. Past Due is well worth the read.

Amendments to the FDCPA are still some time away.

If some of the “Plus” lines found in the report from Consumers Union make it into the amended federal collection laws, I predict the following:

  • Fresh charge off debt portfolio values will increase to highs not seen since 2005
  • An end to lawsuits filed mill style
  • A bit of shrinkage in the number of debt collection shops that will continue operations
  • Traffic to some of the more whacky web sites about “How to beat a debt collector with Debt Validation” will drop dramatically
  • Debt buyers will adapt their portfolio performance goals and move to sue sooner after purchase than later

I believe that most of the suggestions found in the CU/EBCLC report will not only lead to better consumer protections, but also create better recovery  performance at legitimate companies operating in the collection space.

When you work with consumers who are trying to recover from financial struggles of the past or present for any significant period of time you can honestly say; the vast majority of people want to pay their obligations. You should certainly be able to do so with dignity and confidence that you actually owe the debt, are not paying too much, paying the right party and are able to put the debt behind you for good and move on with your life.

Your participation in discussing this important topic in the comments section below is welcome.

Food Stamps Responsible Corporate Citizenship and Bacon Cheeseburgers

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I have long had an addiction to reading economic blogs. I mostly visit blogs and sites that have daily commentary while enjoying my morning coffee. The sites that I visit tend to have a no holds barred approach in their writing and commentary on daily economic trends. One such blog I have enjoyed reading on a near daily basis for several years now is from Mike Shedlock (Mish).

Mish has a post up today: Food Stamp Usage Up Nationally

It shows my state of Idaho having the largest year over year increase in residents receiving food stamps, or what is now referred to as SNAP. SNAP stands for: Supplemental Nutrition Assistance Program.

Reading the post was timely for me, as you will understand in a moment. After reading some of the comments to the above linked post by Mish, I was motivated to post a comment of my own.

I am writing this post and sharing the contents of my comment with readers of DebtBytes because many may not know the policy we at Consumer Recovery Network adopted to help feed those who often go hungry inside the communities of many of our customers across the nation.

Here is the comment I left:

“I have been reading Mish for years and assume this post is intended as a real time representation of deflation.

Reading the comments (and the fact that I am really hungry right now), prompted me to add to the discussion.

Today my family is participating in “Feel the Hunger”.
I made my daughters each a 1/2 cup of rice before school. It’s all they get to eat for the whole day. My youngest ate 2 tbls prior to leaving and took the rest with her. My oldest held off from eating any, but took the full 1/2 cup with her.
All I can think of right now is bacon…

There are many locals in my small North Idaho town participating.

This is a good learning tool for my daughters.

There are local answers to hunger, but they depend upon the participation of those better situated.

The work I do at my company focuses on assisting mostly middle class families in financial turmoil. For those suitable to use the approach we advocate, we provide a good alternative to bankruptcy (mostly alternative to chapter 13). Our fee since opening our doors for any direct hands on service is wholly contingent upon our success. In over 20 states we do not collect the fee, but still provide the service. In lieu of collecting the fee we encourage our customers donate the calculated fee to low income legal aid in their area, or to their local food bank in the form of nonperishable food items.

We are not a nonprofit. We like profit as much as the next guy, but we keep our fees low and our results and retention high. Our reputation is exemplary in an industry known to scam and leave people in a lurch.

We do the work we do, the way we do, for a myriad of reasons.

We do not advertise, as the cost would be borne by our customers who are not in the best position to fund higher fees. We mostly rely on word of mouth and organic exposure.

My point: Be part of the solution when and wherever you can.

Man… I could go for burger right now…”

The people we help here in Idaho and in Mish’s state of Illinois are included in that list of over 20 states where we encourage donations to those in need.

I will cover why we designate low income legal aid offices as donation recipients in a later post.

Companies like Consumer Recovery Network exemplify, in our chosen unique way, good corporate citizenship. If you have the ability, next time you stop for groceries, consider picking up a few extra food items and drop them off at your local food bank.

Oh, and if you happen to be in Sandpoint Idaho, I could go for a bacon cheeseburger right now….

Double Oh, check out Mish’s blog. He gives a rip about the state of economic affairs in this country.

Tax Deductions – A Better Form of Stimulus for the Middle Class

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What if tax payers could claim interest payments on debts (other than mortgages) as a deduction? Would it assist in an economic recovery? I would suggest YES. The fundamental reasoning would be two-fold.

  • It would allow consumers with debt to be able to more aggressively pay down that debt with the tax savings, which could put them in a position to spend responsibly sooner than they would otherwise be able.
  • Doing so would also prompt additional consumer spending

Banks who have proven to be the best lobbyist’s should get behind a move like this. If there were more willingness and ability to borrow, banks will step up. They could charge rates with less public or political back lash. Banks would also likely see an immediate reduction in the sky high default rates they are experiencing now.

Think about it.

This type of policy move could spur spending and thereby job creation. This is what the country’s economy needs to climb out of this recession, not more ZIRP, ineffective onetime tax credits, or short lived sugar rushes from stimulus spending. These things have only proven to cause distortions in market conditions when what we need is stability and a return to some semblance of predictability.

Take this a step further and provide tax deductions for all interest payments on all debts. Interest payment on debt is essentially phantom money that does not really exist in the money supply, unless you count the audible sucking sound it makes. Interest payments are an additional tax on the labor of those who borrow. This type of tax deduction would provide a strong benefit to a struggling middle class.

Other than some pulled forward demand market distortions this may create in the first year it is implemented, what distortions would a policy like this create? The act of using credit to buy a thing is already pulling forward demand as it is.

Would a move like this “screw savers”?

One might argue this is so, but likely only in perception. Savers save, that’s what they do. They are smart enough to look for ways for their money to earn interest, not pay it. Taken in totality, a policy move like this may actually provide more investment opportunity for savers.

The federal tax base would take a hit, sure, but the government has proven it is going to deficit spend no matter what anyway. With the inevitable stimulus plans 2.0 through 9.0, additional backstopping of the states, unemployment extensions etc… being baked into the cake right now, wouldn’t this tax deduction be a better way to let the free market help to sooner find the equilibrium our economy so desperately needs right now?

We have mortgage interest tax deductions as a means to promote home ownership. Given the dire need of consumers and businesses to start participating in an economic turnaround that has solely been fed-by-the-fed to date (the sugar rush is fast wearing off), why not treat all interest on debt the same?

Wouldn’t it be nice if the price of a thing was actually the price of that thing, instead of the price tag plus interest? Sure, that’s exactly what happens when you pay cash, but cash transactions are only part of spending. An economy reliant on credit and fractional reserve money policies is what he have, and have had, for some time now. Unless our country is ready to give up that ghost (it’s not), being able to deduct all interest payments on debt might be a nice little push for a national economy on training wheels in need of finding the balance to ride on its own.

Should a tax deduction on interest payments be temporary? Perhaps only for the next 10 years, while the US is busy emulating Japan’s economy of the PAST 10 years? What am I missing here?

You can Survive Debt!

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Guide to Surviving Debt by NCLCIn the debt relief industry, finding a reliable and affordable source of comprehensive information about all of your options that is unbiased and not motivated by selling you something is becoming increasingly difficult to find.

This post is about “talking someone else’s book”! In its seventh printing no less!

The #1 resource I could possibly recommend to a consumer struggling financially and who is concerned with being fully informed about all of their options to deal with crushing debt is “A Guide to Surviving Debt”.  This book has critical information EVERY consumer will want to evaluate if they are struggling to find the best solution for themselves and their family in tough financial times.

This book will thoroughly deliver reliable information that you can use to determine your best path for getting out of debt, with no concern for whether the information is slanted toward a solution other than the one that is best suited for YOU.

Let me put it this way.

Get this book, read it cover to cover, and you will know more than most of the self-proclaimed experts offering debt relief advice or products.

Surviving Debt tells consumers, their counselors, and lawyers what they need to know about:

  • dealing with debt collectors
  • which debts to pay first
  • saving your home from foreclosure
  • your credit report
  • credit card debt
  • student loans
  • when to refinance your car loan
  • income tax collections
  • how to find effective credit counseling agencies
  • special rights for military service members
  • your bankruptcy rights
  • much more

“A Guide to Surviving Debt” is published and available from the National Consumer Law Center (NCLC).

NCLC has a dedicated and successful history of championing consumer rights that spans decades!

If you are struggling financially or work with people who are, you owe it to yourself or those you work with to review this number one go-to resource!

Banks – Saints or Enablers – Money Blogger Gets It Wrong

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Click here to read how wrong. There are far too many examples of how banks behave badly to line out in a single post. Banks got it so wrong, our national economy suffered to the brink of a new depression. Apologists for banks, when focused on defending a single issue, are not always off base. Apologizing for banks behavior  in areas where some of the worst abuse occurs is a bit…. shameful.

With quotes like the following, you should really click the linked blog above for the full read:

“Of course, the U.S. congress passed the CARD Act as a measure to “protect” consumers from the fee-generating schemes employed by greedy credit card issuers aimed at targeting defenseless consumers. PAHLEESE! I’m not buying it.”

“The real losers here are the millions of folks who use credit cards…”

“If you think banks credit-card fees are the source of your financial troubles, then you have the mind set of a money LOSER.”

Banks Behaving Badly

While Mr. Martin ends his brief article with sound advice, everything but that last paragraph leads me to question the depth of thought he lent to the topic prior to his missive.

  • Mr. Martin, are you aware of the pernicious practice of rate jacking a consumer on purchases already made and budgeted for, thereby increasing the costs of that purchase (often dramatically)?
  • Are you aware of the now widely documented and recognized arbitration scam used by major card issuers and foisted on the American public?
  • How about that card issuers securitized and sold to investors credit card receipt portfolios and that this practice, as quoted by the FDIC, accounted for half of their funding source, a practice which enabled  unhealthy expansion in credit (remind you of sub-prime mortgage backed securities anyone)?
  • Have you seen any of the investigative reports on credit card practices done by Frontline which establish these practices as having been developed to profit off the backs of low income and middle class Americans?

Wrong in word or deed.

I can only hope some of what he wrote was tongue in cheek, but it does not appear so. While I would tend to agree with the underlying message of your words suggesting consumers become more constrained and informed in how they approach spending and budgeting, and agree that this premise should extend to governments and politicians, please do not suggest that banks are innocent in their enabling the credit fueled boom/bust we are experiencing.

  • Did consumers create the sophisticated loan programs that are not done blowing up in our nations face? No. How could they? They are money LOSERS in your words.
  • Were banks bailed out having the costs pushed onto the American taxpayer (that would be you and your CFP clients)?
  • Are banks done failing and being taken over by the FDIC as a result of their risk taking?

Mr. Martin, how many people do you speak to every day that lost a portion of their income in the current recession and who made every effort to communicate with their creditors openly about the need for a payment restructuring whose plight falls on deaf ears, only to then have their rates jacked from 8.9% to 29.9?

Mr. Martin, are you heavily invested in bank stocks? Did you personally, or in your capacity as a financial planner encourage others to; invest in pools of securitized debt obligations?

Can Settling your Debts make it Easier to Find a Good Job in Today’s Tough Job Market?

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In a recent blog post written by Diane Stafford with the Kansas City Star entitled: Bankruptcy filing thwarts re-employment, Stafford highlights a key reason why consumers who can qualify for a Chapter 7 liquidation of debt bankruptcy should research ways to avoid it, if at all possible. The concern here is your credit report when you are a job seeker.

One of the primary benefits of filing for Chapter 7 bankruptcy is that your unsecured debt, like credit card debt, gets discharged or wiped out, which gives you the financial fresh start you need if you are strapped with too much debt. However, as Stafford points out, not only will your bankruptcy be part of the public record and noted in your credit report for 10 years, but in today’s job market having that information in your credit file can make it much more difficult to find a well-paying job. That’s because there is a lot more competition for good jobs and so many employers are using other criteria besides an applicant’s resume and references to help them decide who is the “best” person for the position they want to fill. In many instances, one of those criteria is whether an applicant has filed for bankruptcy. The theory is that if an applicant can’t manage her own money, then she probably has bad judgment and would not make a good employee. Of course, as Stafford points out, this attitude does not take into account why an applicant filed for bankruptcy. For example, the applicant may have an ex-spouse who is not paying her the child support she is legally entitled to or the applicant’s health insurer is refusing to pay many of the medical bills associated with his wife’s serious illness.

Therefore, professionals who have been downsized or are concerned that they may lose their jobs should recognize how easy it is to hit the debt wall when they are out of work and should take aggressive steps to address their debt. Although filing for bankruptcy is an option to consider, they should also consider other alternatives, like debt negotiation. Debt negotiation has proven to be an effective option for credit relief and can prevent a bankruptcy from appearing on your credit report.

Settling credit card debts to prevent bankruptcy while seeking a job.

Debt negotiation involves contacting your creditors, such as the banks that issued you credit cards, to try to reach a compromise with them regarding how much money you’ll have to pay to pay off your accounts. Your goal during your negotiations is to get each of your creditors to agree to take less than the outstanding balance that you owe and for the amounts that that they agree to accept to be amounts you can afford. These negotiations are typically predicated on your having missed several consecutive payments on your accounts and on your ability to establish that a hardship — like a job loss — has made it impossible for you to pay your outstanding balances.

Until recently, large creditors, especially banks that issue credit cards, have had long-standing policies regarding when they will offer a settlement to a consumer and when they will consider a settlement that a consumer offers to them. Now however, given the current state of our economy, the troubles within the banking sector, the financial industry’s new focus on risk aversion, and increases in account charge off percentages, many banks have not only become more willing to settle credit card debts, but they are also willing to settle for less money than they would have agreed to in the past. This is good news for debt stressed consumers.

Financial optimism in the face money challenges.

In her blog, Stafford mentions the plight of one professional who might have been able to avoid bankruptcy if he had pursued debt settlement after he lost his job. She writes: “I heard from a professional who lost his job in a March 2008 downsizing at Sprint and began a so-far fruitless job search. His severance ran out, he and his wife depleted three 401(k) savings accounts and used up other savings. They pinched all the pennies they could and are trying to keep their home through a Fannie Mae Loan Modification program.”

The plight of that individual sounds very similar to stories I hear all too often. After losing a job, or experiencing a cut in pay, consumers are optimistic that things will work out for them and so while they are looking for work, they use up their savings and draw down the money in their 401(k)s so they can pay their living expenses and their debts. However, once their money runs out and they are still jobless, many of these consumers end up in bankruptcy. Although I am not criticizing the optimism of these consumers — they need it to help them get through the tough times ahead — I am suggesting that many of them might have made better use of the money in their savings and retirement accounts by using it to settle with their creditors. That way they could have avoided bankruptcy and possibly made it easier to find new well-paying jobs.

Although there always has been and always will be consumers who will benefit more from a Chapter 7 than from negotiating their debts, the fact is that many debt-stressed consumers who do file were actually excellent candidates for debt settlement.

Banks Raise Credit Card Interest Rates Based on Risk – But This Leads to Losses

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More than half of all of the people that have consulted with Consumer Recovery Network over the  years, have indicated that credit card interest rate increases had made it harder for them to keep up with their monthly payments. Why are these increases happening? In many cases it’s because of something called the universal default, a provision that’s in most credit card agreements.

The universal default clause gives banks the right to increase your credit card rates for virtually any reason. I refer to the practice as rate jacking. Whatever you call it, the practice is bad news for consumers. You can be rate jacked even if you were never late making a payment on the credit card with the increased rate!! Basically, the universal default clause gives banks free rein to increase the interest rate you must pay on your outstanding credit card balances for just about any reason.

I have been rate jacked!

Here’s how rate jacking works: After conducting a periodic review of your credit history, the creditor decides that you are too close to your credit limit on some of your credit accounts, notices that you were late making a payment on one of those accounts, or discovers that you recently opened one or more new accounts. As a result, it raises the rate on your current balance and on any new purchases you may make with your credit card. If your finances are already shaky, having that rate increased may be all it takes to push you over the edge, especially if your other card issuers follow suit once they see that you’ve already been rate jacked.

If you are about to be rate jacked, the creditor will send you a notice telling you that your interest rate is going up. When you receive the notice, write the card issuer to clearly state that you do not agree to the change in terms and that you will not be using your card anymore. If you don’t and you use the card after the effective date of the rate increase, you’ll have implied to the card issuer that you agree to the new terms of credit.

You should also call the customer service number on the back of the card to cancel the account. A couple months later, order copies of your credit reports to confirm that they show that the account was canceled and to make sure that each of the reports show that you did the canceling, not the card issuer. (Note: Although your credit score will take a hit when you cancel an account, the damage won’t be as bad as if the card issuer does the canceling.) If there are any automatic debits scheduled for the account you are going to close transfer them to a different account.

Options when you can no longer afford high interest credit card bills.

In our current economy, we can expect creditors to become more risk averse. It makes sense that they would begin practicing restraint again. However, arbitrarily charging consumers additional interest on their credit card balances, especially considering that not very long ago banks were encouraging those very same consumers to use their credit cards for everything and making it easy for them to get cash advances from their accounts, is tantamount to theft. Furthermore, in many instances it does the very thing that banks want to avoid — causes consumers to default on their accounts! But for now, rate jacking is legal. However in February 2010, when the Credit Card Accountability Responsibility and Disclosure Act of 2009 goes into effect, rate jacking will, for seemingly arbitrary reasons, become illegal. Until then however we can expect to hear a lot more about it. Recently for example, Citibank announced that it had rate jacked 15 million of its account holders.

If you’ve been rate jacked and have hit the debt wall, or if you are simply struggling to keep up with your credit card debts, explore your options, including setting up a debt management plan with a reputable nonprofit credit counseling agency, settling your debts or filing for bankruptcy. For information on these options and help deciding which one is best for you, check out our newly published free online debt relief program.