I got a call recently from a close friend who was a bit disturbed by a phone call she received.  See, over the last few years, she has been very diligent with staying debt free, paying her bills on time and keeping a close eye on her credit scores.

Life didn’t start off this way for her, but she has been able to accomplish so much by sticking to her plan.  Now, she is seeing the benefits of her hard work. 

Well, back to the story.  She received a phone call from a collection agency.  The collector started off with the preliminaries verifying name, previous addresses, etc.  Receiving these types of phone calls is out of the norm for her so she asked that he get straight to the point. 

He was trying to collect on a automatic deduction payment debt that she cancelled sometime last year.  The collection amount was about $89.00.  She politely informed him that she did not owe this debt and that there must be some miscommunication. 

At some point and time during the conversation, he even offered to settle the debt for $70.00.  Again, she declined and stated that she would call the original creditor.  The collector stated that she could do that, but to save herself some time and trouble she could just pay the debt…“That way, it won’t go on your credit.  It’s only $70.00”, he said.  Her response to him was…“I’ll just take my chances.”

She did not allow the collector to intimidate or coerce her into paying a bill she did not owe.   She immediately called the original creditor and got the matter cleared within a few minutes.   I love the fact that she showed the greater strength, as Abraham Lincoln said -

Be sure you put your feet in the right place, then stand firm.

Don’t get me wrong;  I know that talking to most collectors is like talking to a rock.  They don’t hear you.  But what’s so important about this is that she had a leg to stand on .  My friend knew she didn’t owe the bill and had the records to back up her claim. 

As I see it, there are a few things she did right:

Spoke respectfully.  There’s no sense in getting agitated over an easily solvable matter. 

Kept good records.  The best thing to do this day and age is to leave some sort of paper trail.  This can be by way of written contracts, bank statements, cancelled checks, emails, etc.  When questions about payments arise, the proof is easily accessible.

Followed up immediately with the original creditor.  I know…it’s a pain in the rear, but allowing problems to linger only makes it worse later.

Asked for proof that the debt has been cleared.  This is very important.  Having a statement from the original creditor can be useful if this debt resurfaces in the future.

If this was a debt my friend really owed, this would have been a different story.  More on that later; but for now, if you owe a debt and are being contacted by a collector, here’s my advice:  Don’t allow yourself to be bullied.  Collectors do have rules and laws that they are held accountable to.  I encourage you though to find a way to resolve your debts so that you can build a solid financial house.  A house with holes in a few windows (the bad debts) doesn’t look too appealing.  Does it?

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As always, thank you so much for reading.  If you have a question or a tip of your own to share, feel free to do so in the comments.  Also, don’t forget to spread the word about PFN – new readers are always welcome.

Standing Tall Image by Orin Zebest

I’ll start today with a little history lesson.  See that picture to the left?  Well, that is a picture of the Philadelphia County Prison in Philadelphia, PA called…the debtor’s wing.  This wing and others like across the American colonies in the early 1800’s, held people that owed debts but were unable to pay.

It was a very simple process.  Creditors who were owed money would simply ask the sheriff to arrest those that owed and throw them in jail.  The only way the debtors could be released was to post bail or pay the debt.  Since most couldn’t do either, they remained in jail for months or even years depending on the size of the debt and their family’s ability to raise the money.  Some even died before being released because of disease that ran rampant in the close quarters of the jail.

In 1831, the United States government ended this practice with the introduction of the Act to Abolish Imprisonment for Debt.  Whew!

Now almost 180 years later, most of us spend our time creating our own debt prisons.  No, we don’t have to worry about going to jail (except for taxes or child support), but it’s a jail all the same.  As Jon Hanson said, “Working while carrying a load of debt is like a prison work-release program.  You are released each day to work, but the balance of your time is spent in a mental prison.”

Over the last several years, we have really seen the effects of debt.  The lives of normal families that were living the American Dream shattered due to the carelessness of creating debt instead of wealth.  As I see it, living in a constant state of want leads to us becoming a prisoner to our passions.

Work no longer becomes a privilege, it’s a necessity in order to survive.

Think about the feelings you had as a child…probably “free”.  Yes, the responsibility of provision was upon your parents, but there was a feeling that time was no option and your opportunities were limitless.  Becoming an adult was like being given a huge stack of blank paper that weighed about the size of an elephant.

We aim wanderously, happily spending money and using credit when we really shouldn’t.  Most of us don’t even realize what we’ve done until it’s too late.  Picture this…you sitting down on the floor “Indian style”.  Now, add up all the debts you currently owe (credit cards, personal, consumer, student loans, etc).  Imagine yourself being surrounded by this amount stacked in dollars.  If you stand, can you see the outside world easily?

See, those few moments of fun have a price tag attached.  That price tag then leads to frustration and unhappiness.  So before you make you next purchase, ask yourself… “Is this helping me to get closer to my goal?”  If not, make the decision to walk away.  Just turn and walk away.  You can do it!

If you’re in a debtor’s prison, what’s your sentence?  How long do you have before release?

Philadelphia County Prison Image by whitewall’s buick

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Thanks everyone for reading!  I really appreciate it.  Feel free to share your own experience with debt in the comments, if you’d like.  So until next time…

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This is a given: theft and forgetfulness.

Each and everyday, millions of us are subjected to one of or both of these casualties leaving our credit and debit cards to fall into the hands of those who are not honest enough to return them to us. 

Our bank accounts can be wiped clean and credit cards charged to the max before we’ve even realized what’s happened. 

I can’t make this experience totally stress free, but I will provide some tips that will keep you from becoming a helpless victim of circumstance.  I’d rather be proactive now than reactive later.  Let’s get started.

Things You Need To Do Now:

1. Make a list.  Compile a list of all credit, debit, rewards, and insurance cards, etc. in your wallet only listing the name of the card and the phone number to customer service.  There is no need to include account numbers in your list.  Your providers will be able to access your accounts with the personal information to supply to them verbally.
2. Put this information in a safe place.  There are very simple ways you can record and file away your list. 
   • Choice #1 – File the list in a safe place in your home.  “But, what if I’m away on vacation?”, I hear you say.  I’m glad you asked. 
   • Choice #2 – I think the best way to store this information for easy access is Google Docs.  It is an easy application with Google which only requires you to have a username and password.  If you already have a Google account, just use your current information to log in.  If you don’t, signup is really easy.  The major benefit of this choice is that it only requires an internet connection to be able to retrieve your information…anywhere, anytime.

What To Do If…

These ideas are not new and I certainly didn’t create them, but listed below are four basic rules to follow if you have been a victim of forgetfulness or theft.

1. File a police report (if your information was stolen).  You can provide this report to your bank and/or credit card providers as some form of proof, if needed.
2. Call the customer service departments of all card providers.  Do not forget to write down the name and mailing address of the person you speak with.  This information may be needed at a later date. 
3. Call the three national credit reporting agencies (Experian, TransUnion and Equifax).  Ask that they immediately place a fraud alert on your Name and Social Security Number.  This will require lenders to verify your identity prior to extending any new form of credit.
4. Make contact with your local Department of Motor Vehicles.  You must get your license replaced as soon as possible.  There is nothing worse than having your wallet stolen, thieves using your license to steal your identity, and then you get stopped by the police.  Do you think they will buy the “my wallet was stolen” story?  I’m sure they’ve heard that one a million times.

Will I Lose Everything?

Not if you act fast.  Thank goodness the Federal Government has given us different levels of protection.  By law, once you report the loss or theft, you have no further responsibility for unauthorized charges and there is a maximum liability.  See the different levels below.

• If you report the loss within two business days, your max liability will be $50.00.
• If you don’t report  the loss within two business days, your max liability could be up to $500.
• If you fail to report the loss within 60 days, your max liability is unlimited. OUCH!

Now Take Action

Don’t just read this information and say, “Aw, that was a nice little article.”  Use it.  Be inspired. Move.  Take the steps necessary now to protect yourself from disaster later.  I even took a few minutes today to create my own personal file in Google Docs. 

It would also be a great idea to include the “What to do if” steps above in your personal file.  The step by step directions will help you to keep a clear head. You’ll be glad you did.

p.s.  For these wonderful tips, I accept all forms of donations – cash, credit, PayPal.  (ok, ok, I’m just kidding).  Enjoy your day! 

Talk about your progress in the comments.  Did you use a different process?  Have you already been a victim?  Share your story!

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 Loan Officer:  “Ma’am (or Sir), your application  to borrow $5000 unsecured has been approved.  Your payment is going to be $xxx.xx for 2 years at a rate of 11%.  I’ll just need your signature and you’ll receive your funds.  Thank you so much for doing business with us.”

Customer (like a deer in headlights):  “11%?!?! I thought the lowest rate was 9.5%?  Why so high?  I always pay my bills on time.”

Every one of us have had or will have to cross this path to get access to funds we need, but don’t have readily available.  Whether it be through loans obtained at banks/credit unions or by using credit cards, our goal should be to get approved and pay the lowest interest possible.  That way we keep the cost of doing business down to a minimum getting the best possible deal and saving money for other uses.

Let’s go ahead and discuss some of the major reasons why our cost of doing business becomes expensive.  Last week, I asked the question – “Why Do You Think We Pay High Interest?”  I’m happy to share the great responses I received along with my elaborations and additional reasons. 

Reason #1. “We don’t know any better…” -Gina, Gina’s Bookkeeping Service

Ignorance is not bliss.  If you’re not familiar with credit, credit scores and current interest rates, you can be told and sold ANYTHING.  The key is to negotiate (if possible), ask around, and check the internet for companies that track what the current rates are for a specific area of business (credit cards, auto loans, mortgage loans, etc).  There are also financial professionals waiting on you to ask them for their advice.  An educated shopper is a smart shopper.

Reason #2. “It depends on what you’re borrowing against…” –Daniel, Casual Kitchen

There are two different types of loans:  secured and unsecured.  A secured loan is when a borrower uses assets as collateral to decrease the risk assumed by the lender.  An unsecured loan is a loan that is not backed by any collateral.  It is just your signature and a promise to pay back the loan.  The risk for an unsecured loan is much higher than for a secured loan so you can expect to pay higher interest.  BUT you need to know what the interest rate ranges are for your level of credit (see Reason #1) to determine if you are getting a fair deal.

Reason #3. “Interest Rates fluctuate with the economy and status of the Federal Reserve Bank …” –Lakita, Personal Finance Journey

You can attempt to predict future rates by paying attention to what’s called the federal funds rate which is set by the Federal Reserve Board (the FED).  This is the rate that banks charge each other for overnight loans and is an early indication of the trend for longer term interest rates.  It’s basic supply and demand.   When the FED feels the economy is growing too fast, the rates are raised making it more costly to borrow money.  When the economy slows, the rates are lowered making it less costly to borrow money.  So if you can start noticing the trends of the federal funds rate, you can choose the right time to borrow money.

Reason #4. “We cannot wait…” –Eric, Eden Journal

Hmmm…impatience.  Yes, this is a great reason.  We can avoid the whole issue of paying interest just by saving up and using cash.  I do realize that this is a hard concept to apply to the large dollar amount purchases, but what about all the small purchases that we pay for with the swipe of a card.  The small purchases are actually the ones that do more damage because we pay for them over a longer period with compounding interest. 

Reason #5. “How much credit we have available and how often we use it…” –Susan Liddy, Secrets to Ultimate Living

This is actually funny, but when I was young, I used to think that having a lot of credit cards meant that you had lots of money.  But I think this concept was sold to me by television commercials.  If I remember correctly, weren’t there commercials on television that used to promote having many available sources of credit? The portrayal was of a consumer with a credit card that was not accepted, the spin was that the consumer would just pulled out another card to be used for the purchase.  The message was that it was “cool” to have many credit cards.

Well, those days are long gone.  The amount of credit available to you actually hurts your credit.  The risk is that you will use the available credit and not be able to afford to pay it back, which could then lead to a loss to the lender.  This has also led to many lenders closing accounts that have been inactive for a certain period of time.

Additional Reasons:

Reason #6.  Late pays, delinquent accounts.

This is an obvious cause for paying highly for the cost of credit.  Late pays and delinquent accounts appear on your credit as a “warning” to new lenders that you are a risk.  This new lender knows that you have the potential to default on repayment which prompts them to charge you the higher interest rate.

Reason #7.  Too many inquiries.

Another red flag to lenders…you’re shopping.  The inquiries show up on your credit immediately, BUT there is no way for the lender to know if you have been approved or denied which takes us back to Reason #5 – the total amount of available credit.  Lots of available credit equals a huge risk to the lender.

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As stated before, when it comes to borrowing money most times we cannot avoid the payment of interest.  We do have the luxuries of maybe using the “0% down” or the “Same as cash” plans, but that is credit dependent and a whole different animal.  The purpose here is to start making corrections in our credit profiles to lower our risks to the lender which lowers the amount of interest we pay.  $10 here, $20 there per month adds up to a lot of money over time.  I’d prefer to keep more of the money I’ve earned. 

It all boils down to this:  The higher the risk to the lender, the higher the rate for the borrower.

So, what say you?

• Do you pay the high cost of credit (high interest)?  Does this information help you to understand why?
• Have you overcome paying the high cost of credit?  What did you do to turn it around?
• Comments are encouraged and welcome!

Special thanks to the commenter’s who contributed to this article.  You guys are awesome!  And thanks to ALL OF YOU for reading.  I appreciate the time you spend here and I send you lots of love.

Don’t forget that education and knowledge about money is powerful so don’t forget to pass this message on to your friends. 

Greetings friends!  TGIF!!!  I have spent the majority of my time today with a class full of rambunctious 3rd graders.  Needless to say, it’s been a very interesting one.  But now I have a quick little Q & A that I would like for you to participate in.  Let me give you the details.

Over the next few days here on Personal Finance Notebook, I’ll be exploring the topic of “interest rates” and why they are low for some and extremely high for others.  I know we all want to default to the fact that those who get stuck with the high rates are the one’s that don’t pay their bills, but there are additional factors to consider as well.

I’ve identified a few reasons that I’ll be communicating later, but I do want to open the floor for everyone to list their own.  This is a community of learning and  sharing any ideas related to Personal Finance.

I would like to use a few quotes from your comments so be sure to include your name and web address (if you have one) in the appropriate areas of the comment section.

So, here’s the question again:  “Why Do You Think We Pay High Interest Rates?” – You may give specific factors used to determine a consumers interest rate.  Keep this in mind:  You can have an excellent pay history and still be offered a crappy rate.  Why?

No answer is too simple or too complicated.   I look forward to reading what you have to say about the subject and sharing my ideas within the next week or so.  Be sure you are subscribed to Personal Finance Notebook by RSS or Email to receive the articles posted in the coming series.

Thank you in advance for participating!

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If you have a financial question you would like answered in the “Ask Personal Finance Notebook…” Series, please feel free to do so by clicking on this link: “Ask A Question”.  Education and knowledge about money is power so don’t forget to pass this message on to your friends.  I appreciate you for your support and I send you lots of love!