There is bad debt.
There is also good debt.
In today’s media laden world there are more and more financial experts proclaiming the only way to live life in this economy is to be debt free. Hey, don’t get me wrong I happen to like much of what Dave Ramsey preaches about credit and debt but I disagree about totally wiping out all of your debt, painfully living below your means, and eating beans and rice until you can afford the steak. That’s no way to live life richly! Rather it’s my belief each of us to adopt proper personal finance skills in order to keep the bad debt from taking over your life.
In this world there are good forms of debt that we all must use to make life’s freedom possible. An example of a good debt is the home mortgage which can be leveraged to build equity or for investing in a property that creates you a form of income through rent. We’ve failed in America in teaching which debt is good and which is bad. Even consumer credit such as credit cards can be good if properly used. We need to educate about the differences.
It’s my premise that bad debt is really just bad behavior by the consumer. We need to be aware of our behavior which is causing damage to our personal finances, credit reports, and scores. We need to be vigilant about correcting wrongs in the way we handle money and in our credit reports. We need to educate ourselves about the good forms of credit that add asset value to our personal worths! We will be discussing and learning strategies in future blog posts!
Until then I want you to reflect on this… living life richly in America today probably includes:
- Earned Income (Job)
- Capital Gains (From Investments)
- Passive Income (From Rental Investments)
- Credit Cards
- Other lines of credit
On your journey towards a high personal worth, please order a juicy steak to celebrate the small wins!
This weekend I was sitting in a local restaurant enjoying a quick lunch with my wife. As we were waiting for our food to arrive I couldn’t help but over hear what the couple behind us was talking about. It was obvious they were planning out their holiday shopping strategy and it was clear they were planning on spending more than they had.
During their conversation the wife pulled out her wallet and laid out a stack of credit cards. She took one in particular and called the customer service number on the back. So while she was eating she was also having a desperate conversation on her cell phone about how much her line of credit was and how much was available versus what was needed. She told the rep on the other end that she has some special gifts to purchase and anything they could do would be great. In the end the wife received the good news, credit limit was raised, great gifts would be had. But from my perspective the only thing being had was the middle aged couple that was leveraging their future in order to have a great Christmas in the family!
Granted I don’t know the whole story and may be judging without cause but at this time of year I fear that the meaning of Christmas has become how big, expensive, or cool a gifts we can get our families. And given the continued state of the economy we all ought to be more realistic about our gift giving and expect to receive less at the same time. The gift of yourself is always the best way to express gratitude and it’s free.
My gift to each of you is to ask you give yourself a gift of a savings account for next Christmas’ budget. If you already back online or need to sign-up for a savings account it is very easy. I recently opened an account at AMEX Savings just for this purpose. Think about putting 50 to 100 dollars in your account every month. And for next year you’ll have over $600 saved for purchasing gifts with cash or even give cash as a gift. How powerful is that?!?
It’s a very peaceful Sunday afternoon and I’m enjoying the sun and summer like temperatures. What a great day to just unwind and prepare mentally for the coming work week! However in the midst of this Zen like moment the phone is ringing off the hook! Who could that be???
It’s a bill collector calling my home on a Sunday afternoon! Is nothing sacred I think to myself! It was a cordial lady on the line wanting to work with me on paying off an old medical related bill that I had most likely overlooked. I told her I was not prepared to discuss the bill until I had received some sort of validation of debt via snail mail and asked her to kindly stop calling me about this matter. I promised I would respond once I researched the situation myself and had contacted my health insurance provider to see if there was some sort of error. Bottom line my Zen moment was killed with that darn phone ringing and me answering it!
To put my mind back into to the previous peaceful state I decided to write about my experience and share with everyone who reads my blog. If you are one of the millions of Americans with debt collectors calling you on a regular basis then you need to know how to deal with them. I write this with the caveat that you do deal with the original creditor in most cases rather than the collection agency and that you do resolve the matter. (Unless the darn original amount owed is way way past the statute of limitations and in that case re-starting payment on such an old debt leads to prolonged issues with your credit files) To that end please make good on your promises and then learn to never get into that situation again. Agreed? …Good!
What should you do if a debt collector calls you on the phone at home or work?
- Answer the phone with utter calm and a powerful smile.
- Ask the caller to identify themselves and let them know you are logging/recording the call. At this point also ask for their mailing address and case file number for this attempt of collection. (Send Cease and Desist Letter via mail to them as soon as possible)
- In a clear and pleasant voice state you are not willing to do business over the phone at this point disputing the validity of the debt. (They must cease contacting you on this notice)
- Ask the caller to identify the original creditor and request written documentation be sent to your home mailing address.
- Do not let them threaten or harass you! They can’t do that under your rights. If they do this tell them once again you are not in a position to agree to anything and that you will certainly not do any business over the phone.
- Finally please calmly reinforce your demand to have the caller’s company cease and desist all collection activities on this matter as you are disputing this debt until it’s fully validated under your rights given by the Fair Debt Collections Practices Act. Smile even more!
- Hang up and log the date and time of the call. If you get a future call from them log it once again and repeat steps 1-6 again. If they continue to ignore your cease and desist demands you may file a complaint against them and or sue for damages.
It all seems very easy but it can be very intimidating. Just remember you have the upper hand. You have the rules on your side! Essentially you are dealing with a person whose only interest is getting you to fork over some money. The debt collection phone rep is paid a salary and commission and the commission/bonus is based on converting old past debts into current revenue and profit. So don’t let a phone queue rep just doing their job ruin your Zen moment!
Whew, now that we have mastered how to deal with the collections sharks, let’s get back to making some ice tea and enjoying the backyard patio! The birds are in singing and having babies! The flowers are in full bloom! Butterflies are fluttering about! My friends, life’s too short to let a phone call ruin your day!
Live life richly today!
Avoiding a credit disaster is one of the most important things you can do as a consumer. Especially if you are a married couple. Many times we ignore the signs of impending danger and assume the spouse will take care of things. It’s best if everyone is on the same page.
Have you missed a credit card or mortgage payment? Or are you afraid of missing one down the road? Are the payment deadlines getting harder and harder to make on schedule? You must exhaust all options to avoid late fees, charge-offs, or foreclosure! The impact on your credit report can be lasting for up to 10 years in some cases.
Tips to avoid disaster:
- Don’t ignore the problem.
- Contact the creditor once you realize there is a problem.
- Keep open communication with them and DO NOT IGNORE mail and phone calls from them.
- Learn about options for help with mortgage and credit card trouble.
- Prioritize and re-evaluate your spending habits.
- Use your assets to create additional income.
- Avoid debt consolidation programs and or foreclosure prevention companies.
- Beware of scams. Does it sound too good to be true?
I don’t believe in the validity of the debt relief programs that promise to save you thousands of dollars by letting them manager your payments on outstanding debt.
I bet you have seen/heard the ads on TV and Radio promising you can participate in Obama’s stimulus bailouts by contacting the ABC Debt Solutions company and if you qualify you can to eliminate over $10,000 of credit card balances… blah blah blah. What you don’t know is that in most cases the consumer will end up with horrible credit records and will pay dearly in the long run with unexpected consequences.
If you possess high balances and are having trouble paying your minimums it would be much better you take control of your own situation. For instance please don’t ignore the phone! Either answer the collection calls or make the calls the creditors yourself. Be bold and preemptive. There are programs in place with most lenders to help with payment options during these tough times and all you have to do is ask. If the account is only recently past due you should be able to work something out to make your account current or at least work towards current status. This will save your credit score in the long run.
If you are already beyond missing a payment or two and your account is in collections or turned over to a third party company, you can certainly also take control and make an effort to begin addressing the situation. If the collection agency is calling you relentlessly you can use the cease and desist letter to call off the dogs. This action will require them to stop contacting/harassing you for the debt. As part of the letter you are stating you are contacting the original creditor and will be dealing with them directly. So you must call the original creditor and begin negotiating next steps.
Finally if the account is extremely beyond past due or is charged off by the creditor then you must contact the original creditor and begin talking about a settlement in return for a status change for this account within your credit files. This can be trickier but it can happen!
Keep in mind all of this should be done by you. You don’t need to hire someone to take control of your situation. If you follow these simple steps you can earn the satisfaction of self resolution and save valuable dollars along the way! For details on this and other strategies please go to my website at CreditMania.com.