July 2009
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Consumer Credit Counseling Services (CCCS), Debt Free America (DFA), and other such “credit counselors” exist as non profit organizations designed to help consumers get out from under crushing credit card debt and get a new lease on life by living debt-free. The credit counselors work with your creditors to lower your monthly payments and reduce your interest charges. Or so they claim.
The truth is that using a credit counseling service can have as detrimental an effect on your credit rating as filing bankruptcy. In fact, it can be worse. The credit counselors will indeed work with your creditors and many creditors will agree to reduce interest rates and suspend late fees while you are on the program. Others will not. Being enrolled in a credit counseling program will not automatically cease collection activity or stop legal action from being taken. CCCS, DFA, and similar companies do not have a “magic wand” that will make all of your financial woes go away.
Is it Really a Non-Profit Organization?
Every debt management service provider that you’re likely to come across lists itself as a “non-profit organization.” Have you ever wondered why there are so many of them if no one is profiting? The truth is, these companies are a literal cash cow for their owners and officers. Each debt management company participates in something called “fair share.” They request a portion of the monies delivered to your creditors in return for getting you to pay. Not all the creditors comply, but many do. CCCS makes millions from fair share every year.
In order to keep their non profit status, the companies must show no profit at the end of the fiscal year. Income above their operating costs is funneled into equipment upgrades and lucrative bonuses for the companies’ owners, officers, and management.
Some of the companies charge a nominal fee for their services. Many others do not. If you’re using one of the ones that do and you’re short on your payment one month, the debt management company still collects their fee and will allow one or more of your creditors to go unpaid.
Debt management companies do serve some good, and have helped many people reduce and eliminate their debts. They also provide worthwhile information about staying out of debt to the public. If you’re considering using one, make sure that you research them thoroughly first and weigh all of your options before committing.
Written by srini on July 4th, 2009 with 1 comment.
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The word ‘budget’ rings like a harbinger of doom in the minds of many people. Instead of bringing up images of good planning and wise spending it is looked upon as a ball and chain latched to your wallet rather than your ankle. In truth a budget is simply a financial plan that stipulates how much money will be spent on certain expenses in a given time period. Successful companies plan their year on a budget, as do governmental bodies. Why shouldn’t you?
Planning a Good Budget
A good budget tries to take all eventualities into account. When planning a personal budget, you should set specific amounts for your utility bills, account and loan payments, rent or mortgage payments, savings, and emergency funds. You don’t have the luxury of deficit spending like the government does, so if you find that the amount you need to pay out exceeds the amount coming in, adjustments must be made. These adjustments may be minor, like skipping the soy mocha latte at Starbucks each morning, or severe, like seeking a second job in order to get out from under credit card bills.
Stick to it…. Always!
The best planned budget in the world doesn’t amount to a mountain of Alan Greenspan’s denture adhesive if you don’t stick to it. Controlling impulse and entertainment spending is a must. If you have the means to include an entertainment category in your budget, by all means do so (everyone needs to enjoy themselves from time to time) but make sure you adhere to those guidelines. Dipping into the savings or putting off the power bill in order to indulge in some luxury is just a bad idea. That nifty new PC isn’t really worth having if your power gets cut off because the bill is late, is it?
Plan Major Purchases
You need to set a dollar amount as a spending cap. Anything that costs more than that amount needs to be considered a major purchase, and must be planned for. If it’s just a little over the cap and can be purchased by skipping on the entertainment budget or a similar category for a month or so, then do that. If it’s a high dollar item that must be purchased with some form of credit, seriously consider the impact the payments will have on your budget before making the purchase.
Written by srini on July 3rd, 2009 with no comments.
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I have always been very poor at mathematics. I can add, subtract, multiply, and divide, of course and I vaguely remember a few things about basic geometry, but overall I get all befuddled when it comes to even the simplest of complex equations (there’s an oxymoron for you!). In school I always excelled in conceptual studies: literature, art, even more literal things like science, history, and economics, but I failed Algebra. In fact, I failed it three times.
In my senior year, to make sure I would graduate, I had to take a “lower” math course to get the one credit I needed. I took Consumer Math and found myself in a classroom full of stoners, auto shop rejects, and kids with names like “Spike” and “Big Louie.” I was a somewhat brainy and rather nerdy kid in a remedial math class. It was going to be a long year.
You may remember a guidance counselor telling you that math was an important subject because you would need it all through your life. I didn’t buy that then when speaking about algebra and I still don’t now. I can honestly say that I have never needed to know at what point would the train leaving Phoenix traveling 120mph would pass the train leaving Chicago and traveling 150mph, not once. The “remedial” Consumer Math course, on the other hand, taught me some very important things.
• How to balance a checkbook
• How to complete a 1040 form
• How to budget income
• How interest is compounded
It turned out that the math class they sent the “special needs” kids to was the one that should be required for all students. I was sent off into the world armed with the knowledge I would need to get by while all the kids who knew how to do the calculations required in building atomic weapons were unable to balance their checkbooks. I’ve often wondered how many terrorist threats were averted because someone’s check for fissionable material bounced.
If you have children in high school, I recommend that you make them take a similar course. No matter how well they do in higher math, the lessons they’ll need in life are being taught to all of the auto shop kids and members of the football team. Let them in on it and put an accountant out of work.
Written by srini on July 2nd, 2009 with no comments.
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The interest rates that banks pay on CDs are currently very low.This puts some consumers in a rather precarious position. If you don’t have enough money to take advantage of investments like stocks and mutual funds, or are perhaps too leery of non-FDIC insured accounts, CDs have traditionally been the way to go. But, with CD rates so low and banks paying CD interest rates based upon the amount deposited (the higher the deposit, the higher the rate, but even the highest The interest rates that banks pay on CDs are currently very low rates are not all that high), many people are asking “why bother” when it comes to investing in CDs. It is this situation that makes CD laddering an investment strategy to consider.
CD laddering is a method of benefiting from the changes in CD interest rates by opening several CDs at once, for different time commitments. This allows you to maintain a long term investment but still have some liquidity to the assets in the time deposit accounts. The ladder can be as long as you like, with as many investment rungs as you like (or can afford). For our example, we’ll use a five year ladder with $15,000 invested.
You have $15,000 to invest in CDs. You can put the entire amount in one 60-month CD and earn an interest rate of 3.69%* over the course of the entire five years. This ties up the entire amount for those five years, however, and should some need to withdraw part of those funds arise during the term, you could pay a hefty penalty fee to the bank. Also, if interest rates are higher a year from now, you’re still locked in to the same rate until the CD matures.
If, on the other hand, you open five separate CDs for $3000 each at terms of 12, 24, 36, 48, and 60 months, you’ll earn varying rates on the accounts (1.54% on the 12 month CD, 2.52% on the 24, 2.62% for 36, 3.01% on the 48, and 3.49% on the 60*), and commit smaller amounts of money for shorter periods of time. When the 12 month CD matures, you’re free to use the funds plus their accrued interest as you wish, or reinvest it in another 24 or 60 month CD. It’s a strategy that takes advantage of the benefits of a CD deposit while working around some of its drawbacks.
*Interest rates quoted were provided by Bank of America’s website as of 6/5/05. Rate structures may vary at other banking institutions or change at any given time.
Written by srini on July 1st, 2009 with 1 comment.
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