May 26, 2005


Credit Card Questionable History

In The Beginning

…In the 21st century using credit cards seems to be a way of life that is generally taken for granted. Whatever needs or wants can’t be met with cash, can easily be obtained via credit. Credit cards per se, however, have quite an interesting history.The idea of credit itself has existed in some form since around the late 1700’s. A furniture salesman wanted to offer his customers a chance to furnish their homes immediately, while taking a little longer with the payments. He introduced the idea of “have now and pay later”. Since clearly, this is an appealing idea to all parties involved, the idea was easily accepted and adapted by others.

By the twentieth century, banks were offering a form of ‘credit protection’ for themselves. Overdrafts were created to cover account balances when customers did not have enough in the account.

Again, beneficial to both parties in that the bank did not lose money because they offered the client a little extra (that they were to pay back) and the client had a little room to breath while waiting to put money into the account.Overdraft protection is something that continues to be widely used and beneficial today.

While credit was being establishers, various lenders were taking new risks and offering various forms of credit.1914 saw Western Union giving their privileged customers a metal card that allowed them to have interest free deferral payments. Known as Metal money, it gave clients some freedom to spend beyond their means. That’s an idea that certainly soared!

So getting to actual credit cards; how did they actually come up with a card that allows spending now and paying later?With the idea of a card that actually lets you pay like you have cash, it didn’t take long for other companies to get highly involved.

Keep in mind, credit wasn’t offered to the masses as it is now.Select companies were getting on board with this idea and offering preferred or specific people some spending freedom. The General Petroleum Corporation was one of the first companies to offer an actual credit card that allowed for fuel and automotive repair purchases. When first introduced, it was only available as a perk to employees. They could use their card, fill up or fix their vehicle, and make payments towards these things with portions of their paychecks.But the cards were so popular with the employees and their families that it didn’t take long for the corporation to extend this offer to the general public.

Other major companies were following suit because they recognized that people could not afford huge prices all at once.For example, Henry Ford was very aware of the fact that people could not just purchase one of his vehicles outright. Thus, before 1930, car loans and financing were introduced and available to the public.

There was a period of time during WWII that credit use was restricted, but this only heightened people’s desire to be allowed to ‘charge it’ once the war was over. People were ready to move on with life, travel, have nice things in their homes, have nice vehicles, and they wanted it sooner rather than later. Credit made this possible on a restricted budget.Would you believe I forgot my wallet?Not exactly a line you’d want to hear on a date, but this simple sentence is what really pushed the credit card industry forward.

In 1950, Frank McNamara was out to dinner with friends and realized when it came time to pay that he had no money, as he had forgotten his wallet.This simple act on his part created a trend that we know and live by today, the modern credit card. With a partner, he created the “Diner’s Club Card”. In his mind, no longer would people be bound to only the cash they had in their pockets when they were out on the town.

Though at first it was primarily a business man’s card, available for dinners and retail purchases while traveling, it soon became a much larger phenomenon. The Diner’s Club Card became a national frenzy and even prompted a Hollywood movie. Business men loved the idea that they could pay for some of their travel expenditures and worry about the cost later and McNamara loved it because when people don’t have cash in hand, they tend to spend more.

By 1955 the first airline (Western) was accepting Diner’s Club to pay for flights. Within ten years, every other major airline followed suit. By securing the traveler’s market, through restaurants, airlines, and retail stores, McNamara and his partner paved the way for the current system of credit cards. It was an amazing business venture that has held it’s success. In fact, Diner’s Club is still one of the top five credit card options all over the world.

In the mean time …As the Diner’s Club Card was exploding onto the public market, banks and retailers were catching on.

IN 1951, Franklin National Bank offered approval on credit purchases which secured the retailer financially.While 1958 saw the introduction of the American Express, a card widely known and still used today, it was the Bank of America that revolutionized the credit industry.

They were the first to offer the option to pay your balance in full at the end of each month OR make a small payment towards what you owe while paying a small interest fee on the remaining balance.Just as with today’s credit cards, this gave purchasers even more options because they no longer had to come up with the full amount each month. So, if they spent a little more than they should have, they can be comforted by knowing they only have to pay a portion. As well, the lender was happy because they earn a little extra money on what is still owing.

Though it is a system created almost fifty years ago, it is a lifestyle well known today.Getting organized …Credit was not only changing the every day lives of the common individual, but it was changing financial institutions as well.

By 1966, it was realized that some order was needed to keep track of credit card transactions. The entire credit system was growing beyond belief and someone had to have control.Turns out the ‘someone’ was a combination of 14 United States Banks that created a group called Interlink. They helped to govern and regulate credit card use.

The credit cards that we know widely today are Mastercard, Visa, American Express and Diner’s Club.While American Express had been around for sometime, Mastercard, or Mastercharge as it was known was not created until the 60’s. It became competition for the revolutionary BankAmericard (the one with credit options mentioned earlier).

To extend their services overseas, BankAmericard became what we know today as VISA.Shortly after changing their name to secure a place across the Atlantic, Mastercharge titled themselves Mastercard. Today, both of these cards are well known and widely used. Each card offers a variety of styles and options in fees, interest rates, bonuses, and credit limits.One final revolutionary move that increased the use of credit transactions was the introduction of the magnetic stripe. This allowed for quicker (and safer) transactions, thus increasing people’s use of credit cards.Since credit cards are used so frequently and made so available, it’s easy to understand why little thought is given to where they originated. Like most fabulous inventions, they came about through the simplest of intentions and some, through the simplest of mistakes.

About the Author:Grant Donald is a successful internet entrepreneur and author whose websites provide moneysaving and credit management advice for consumers purchasing a variety of consumer financial products such as airline rewards credit cards and travel rewards credit cards.

May 25, 2005


Turn Your Stuff into MegaCash

Turn your surplus stuff into cash online

If you thought your choices were a yard sale or Goodwill, welcome to the 21st century. Check out the best ways to sell online --- as well as a few old standards.

By Liz Pulliam Weston

Like many longtime eBay sellers, Margaret Ivetic of Berwyn, Ill., has a garage-sale-to-riches tale.

A friend bought a toy for 25 cents at a yard sale, and as a lark Ivetic listed it on the auction site with a starting bid of 99 cents. The item was a Snoopy wardrobe -- basically a cardboard box with little hangers meant to store clothing for the Peanuts character plush toys that were popular in the 1970s. The cardboard toy was unused, still in its original packaging, but otherwise seemed unremarkable."Neither of us had any idea of its value," Ivetic said. "We didn't think it would get even one bid."After a furious bidding war, the wardrobe sold for more than $50.

Tapping into a huge market.

Getting top prices for your stuff is, obviously, the big lure of online selling options. Instead of relying on yard-sale signs or newspaper ads to find a buyer, you can tap into huge, worldwide markets with relative ease:

EBay has 147 million registered users, 60.5 million of whom bought or sold at least one item in the past year.

Craigslist boasts more than 2 billion page views and 8 million users a month.

More than a quarter of all the items sold on mega-shopping site now come from third-party sellers, which include individuals as well as businesses. But along with popularity comes problems, and the online sites are no exception. Sellers complain about spiraling fees, picky buyers, shipping hassles and even fraud.Getting started can be daunting for a newcomer.

But fear not, gentle reader.

People just like you are selling their junk for fun and profit every day. You just need to know a few tips for selling and how various sites work, so you can pick the one that's the best fit for what you've got to offer.

What follows is a general overview of the four most popular sites, a few ideas on how to ensure a successful sale, a detailed breakdown of exactly how each site works and the costs, and finally a brief listing of alternatives.

The four big sites is pretty easy for newbies to use, but there are limits on what you can sell: individuals can only offer items that Amazon or one of its affiliated retailers already sells. So if you have a new or used PalmOne Tungsten you want to get rid of, you're in luck; if you're looking for a collector to snap up an old Apple Newton, predecessor to today's personal digital assistants, you need to go elsewhere.

Craigslist is perfect if you've got furniture, children's play sets or anything else that's either too bulky for convenient shipping or likely to find plenty of buyers locally. (The site has sections for dozens of cities in the U.S. and worldwide; there's nothing preventing you from advertising in another city, but most people stick close to home.) It's also free, which makes it dear to the heart of many sellers.

EBay is still the go-to site if you have something rare, weird or collectible. Designer clothes, jewelry, sports equipment and stuff that appeals to hobbyists often sells well. One poster on the Your Money message board sold used sky-diving equipment, an old ammunition belt and a fog light for a Ford Ranger. The fog lights came two to a package, she explained, but her husband only needed one."Apparently someone else only needed one too, because (hubby) sold the other on eBay for over half what he paid for the twin pack," she posted., a fixed-price online marketplace owned by eBay, is where many people sell newer books, music, movies, computers and electronics, usually for 50% or less of their original value.

As with, is a good match for newbies if the item you want to sell is already in the site's database; you may not be able to list older or rarer items.

Tips for successful sales

Each site has guides and FAQs (frequently asked questions) for newbies, but these principles apply in general:Do your research. You need to understand how the sites function, as well as the potential market for your item.

For example, Ivetic recommends buying a few small items on eBay before you become a seller so you can get a feel for how the process works. Searching to find similar items for sale can help you determine a price range as well as turn up key words or phrases that might boost your potential audience.

Compose with care. You'll want to give all the appropriate details (size, weight, dimensions, what it's made of, etc.) as well as an honest assessment of the item's condition. Failing to do so leads to unhappy buyers, who complain to the site and knock down your all-important seller feedback ratings.

Choosing the right keywords is essential to getting the best price; teddy bear collectors are more likely to bid on an antique Steiff rather than just an old tattered toy.

Misspelled words could prevent buyers from finding your listing, so use a spell-checker before you post.

Pictures sell. Most potential buyers want to see what you've got. No picture, or a picture cut and pasted from a manufacturer's Web site, will lead to suspicions that you don't really have the item or that it's in worse condition than you say. and typically provide photos, but at the other sites, it's up to you.Watch the costs. Listing fees, commissions and shipping expenses can add up quickly. Make sure the potential profit is worth the hassle of listing, contacting buyers and shipping.

You may need to make some tradeoffs; for example, you can boost your pool of potential buyers by adding the ability to accept credit cards to your PayPal account, but you'll lose another 3% of your sale price to fees, on top of all your other expenses.

Keep on top of your listings. The sites that take commissions (, eBay, will e-mail you when your item sells, but it's up to you to complete the deal swiftly. If you don't check your e-mail for days or drag your heels on shipping, buyers will complain, and there go your seller ratings.

With Craigslist, you're honor-bound to remove your listing when the item sells; unfortunately, many people don't.

Protect yourself. Unless you're arranging a face-to-face sale, you'll want some kind of middleman to handle the money. and collect and disburse money for their sellers, while eBay recommends using PayPal, an online payment service. If the buyer wants to use an escrow service, make sure it's a legitimate one like; fake escrow sites are rampant. (EBay provides a list of recommended escrow services here.) Avoid directly accepting a cashier's check; it could be phony.

If it's a face-to-face transaction, insist on cash.

Track your packages. It's fairly easy for dishonest buyers to insist your items never arrived.
Without some kind of tracking, it's your word against theirs, and most selling sites back the buyers. The U.S. Postal Service offers delivery confirmation for a small fee and package tracking for a larger amount, or you can use one of the shipping services like FedEx that routinely tracks packages.

How the sites break down

Best for: Books, CDs, DVDs, electronics and other fixed-price items.

How it works: You search through listings for the exact item you want to sell, then click on the "Sell yours here" button on the right-hand side of the screen. (If you can't find your item listed, you're out of luck.) You set the price for your item, compose your advertisement and give Amazon your credit card and bank account numbers, along with your name, address and phone number.

If the item sells, Amazon gives you a shipping credit to offset some of your costs, then deducts its fees from the buyer's payment and deposits the proceeds into your bank account.

Listing fees: None

Selling fees: 99 cents plus 6% to 15% of the selling price, depending on the type of item sold.


Best for: Hard-to-ship items, fixed-priced items and sellers who want minimal hassle and no fees.How it works: You click on the community where you live (listed on the right-hand side of the Craigslist home page) and find the appropriate category under the "For Sale" section. You compose your ad, include pictures if you like and post. Potential buyers contact you directly (typically via e-mail) and you work out the details.

Listing fees: None

Selling fees: None


Best for: Collectibles, hard-to-find items.

How it works: You create a seller's account and provide credit-card or debit-card numbers, as well as your bank account information. You're given the option to sign up for PayPal, a payment system that allows you to accept buyers' electronic payments (or, for a fee, credit card payments). You compose your ad, decide on your selling format (typically auction method or fixed-priced), add pictures or other special features, select a category and post your listing.

Listing fees: 25 cents to $4.80, depending on the starting or minimum price. For additional fees, you can upgrade the look of your ad or guarantee it more prominent placement.

Selling fees: 5.25% of the first $25, plus 2.75% of the amount up to $1,000, plus 1.5% of the amount over $1,000. (So if you sold something for $1005, you would pay $1.31 for the first $25 of value, plus 2.9% of the amount over $25 but below $1,000.01, or $26.81, plus 1.5% of the remainder, or 7 cents, for a total of $28.19.).

Best for: Books, DVDs, CDs, electronics and other fixed-priced items.

How it works: You set up a user account, then click the "Become a seller" link. You type in your credit card number and contact information, then choose the shipping methods you want to offer. If your item sells, deducts its commission from the buyer's payment and deposits the remainder directly into your checking account.

Listing fees: None

Selling fees: 5% to 15% of the selling price, depending on the cost of the item sold.

Alternatives to using big sites

Trading assistants: Plenty of businesses and individuals will conduct your online auctions for you. You just drop off the item, or arrange for pickup, and your work is done. Count on losing 30% to 50% of any sales to commissions, and consider using assistants screened by the site. You can find eBay's list of trading assistants here.

Trading forums: If you have a hobby, chances are there are several Web sites devoted to it, and many have buying and selling forums. One poster in the Your Money message board, for instance, recommended for computer aficionados and techies.

Consignment shops: Best for high-end items like designer clothing, formal wear and better furniture. The usual deal is the shop takes 50% of whatever sells; if it doesn't sell, it's usually donated or returned to you.

Yard sales: The time-tested way to get rid of stuff in a hurry. Price things cheaply for quick sales -- the idea is to get it out of your house, not make a fortune. Even then, you'll wind up taking some things to the dump or Goodwill; one Your Money poster recalls having to comfort her husband, who couldn't understand why no one wanted his old recliner with the duct tape patch.

Donations: You won't get cash up front, but you could realize a financial benefit at tax time if you itemize. Check with the charity first to see what items it doesn't accept, and refrain from donating stuff that's unusable. Your only payment will be good karma, but that goes a long way. connects people who need stuff with people who are willing to give it away.

You can find more details in my earlier column, "Don't need that old blender? Freecycle it."

Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board

May 23, 2005


The Consumer's Guide to CCCs

Randy is deeply in debt and desperate. He’s seen all the television ads from credit counseling services that promise to help him, and he’s also been approached by a company that assures him it can painlessly make his debts go away. Is this, he asked me in an e-mail, too good to be true? Often, the answer is yes.

Randy’s thinking of entering a world that’s fraught with fraud, misrepresentation and controversy. Debt counseling has become a $7 billion industry, but not all the players are legitimate.

The best credit counseling can help people who are behind on their debts get back on their feet. Fly-by-night outfits can disappear with your money, and what remains of your credit rating. In between the two are a whole fleet of operators who may or may not leave you better off than you are now.

The morphing world of credit counseling

A decade ago the industry was dominated by the National Foundation for Credit Counseling, whose nonprofit affiliates -- usually known as Consumer Credit Counseling Services -- negotiated lower interest rates and payment plans for people who had fallen behind. Today you can find the Consumer Credit Counseling Service in just about any city.

But the services now have plenty of competition. A rise in consumer debt in the 1990s helped spawn hundreds of rivals, many with million-dollar advertising budgets, slick Internet come-ons and sound-alike names.

Some do a good job of negotiating repayment plans. Others charge fat upfront fees, pay their executives even fatter salaries and pocket much of the money that could be going to pay off creditors. An increasing number target people who aren’t even late on their payments, but who are simply disgruntled about their interest rates.

Who needs credit counseling?

Obviously, all these outfits are finding plenty of eager customers. Americans’ debt loads have been running at record levels, and bankruptcies are high.

It’s hard to get an accurate bead on how many people signed up for debt repayment plans through credit-counseling services. Of those in debt repayment plans, said Lydia Sermons-Ward, spokeswoman for the (National Foundation for Credit Counseling, about half were expected to successfully complete their plans. The other half were expected to drop out, with some of those filing for bankruptcy.

Typically, counseling services negotiate lower payments with credit-card companies and other lenders, then make the payments using a check or electronic funds transfer sent to them by the consumer each month.

Most of the counseling services’ fees are paid by the lenders themselves, which send back to the services a portion of the payments received. This has led some critics to charge that credit counseling is just a tool of the lending industry.

The payment system, known as “fair share,” has certainly encouraged the growth of credit counseling services. And some agencies, driven by competition, are now openly courting consumers who haven’t fallen behind on their debts by promising lower interest rates. This development has angered credit-card companies and often hurts consumers, who may find out too late that such plans can hurt their credit ratings and are often unnecessary.
Are you in danger?

So let’s make this clear: If you’re able to pay your bills and are current on all your accounts, you almost certainly don’t need credit counseling. If your interest rates are too high, you usually can negotiate a lower rate with your credit-card companies just by asking -- or threatening to move your account elsewhere.

Here’s when you might think about full-scale credit counseling:

You can’t pay the minimums on your credit cards.
You’re consistently late paying one or more of your regular bills.
You’re being hounded by creditors and collection agencies.
Your efforts to work out reasonable repayment plans with your creditors have failed.

Be warned: If you’re too far in debt, credit counseling may not be able to help. There are limits to how little your creditors will accept, and a credit counseling service may not be able to cut your payments enough to either give you breathing room or get you out of debt. If that’s true, debt settlement may be your best option, failing that then bankruptcy may be the best of bad options.

Your payments also shouldn't stretch on for years. The typical plan takes four years to six years to complete. Responsible credit counselors say bankruptcy is usually the better option if the repayment would take more than five years.

What to watch out for

Once you’ve decided you want credit counseling, you should investigate the company or service carefully before signing up. Red flags to avoid include:

· Big upfront fees. Consumer Credit Counseling Services typically charge a $10 set-up fee. If you’re paying a lot more, you may be the one who’s getting set up, unless you’re getting extensive and personal money coaching that could justify the fee.

· No accreditation. Legitimate credit counseling firms are affiliated with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.

· Delayed or missing payments. Some companies pocket your first months’ payments as a fee, rather than passing the money on to your creditors. Missing payments can hurt your credit rating. Find out how much of each monthly payment is going to your creditors, and when it will be sent to them.

· Unrealistic promises. Some companies falsely promise that you can settle your debts for little or no money, without hurting your credit rating. Legitimate credit counseling services help you pay back what you owe, albeit at lower interest rates, and acknowledge there may be some affect on your credit rating and ability to obtain new credit.

What counseling can do to your credit

When you enroll into a credit counseling service you will be will most likely be given a category of “R7” on your credit report. This is similar to a Chapter 13 bankruptcy, and it can be on your credit record for seven years after you are done with the program.

Contrast that with a bankruptcy, which is viewed by almost all mainstream lenders as a huge negative on your credit report. These lenders, who prefer to deal with consumers with good credit, typically won’t do business with you for the 10 years the bankruptcy remains on your file.

What happens to your credit during counseling largely depends on how your lenders report your account to the credit bureaus.

First USA, the credit-card giant, reports its customers as delinquent on their bills until they make three consecutive payments of the new minimums negotiated by their credit services, said spokesman David Webster. Citibank, by contrast, simply adds a note to the credit bureaus’ files that the customer is enrolled in credit counseling.

Being reported as late or delinquent can certainly hurt your credit score, the three-digit number widely used by lenders to determine creditworthiness. The credit score formula used by most lenders, known as FICO, now ignores any reference to credit counseling that may be in your file, said Craig Watts, spokesman for FICO creator Fair Isaac & Co.

Even some lenders that were traditionally suspicious of credit counseling have loosened their stance. More mortgage lenders are willing to lend to people who have successfully completed repayment plans, said mortgage broker Allen Bond, president of the California Association of Mortgage Brokers’ Southern California chapter.

Some lenders say they even view credit counseling as an encouraging sign that a customer is getting his or her debts under control. Citibank, the largest issuer of credit cards, says people who have fallen behind on their payments often improve their status in the company’s eyes by enrolling in -- and sticking with -- a debt repayment plan.

“We always viewed that as a positive,” said Citibank spokeswoman Maria Mendler. “We’ve seen that for people who enter these programs, there’s a significantly lower rate of default.”

That said, there are still some lenders who refuse to deal with anyone who has enrolled in credit counseling. And if you fell behind on your payments before you entered credit counseling, you’ll find those late payments will still affect your credit score even after you’ve paid off your debts.

As you can see, there are no easy answers for people who get in trouble with credit. Once you’re there, make sure to evaluate your options carefully, and don’t make a bad situation worse.

May 20, 2005


How your Credit Score Works and How it is Calculated

What Lenders Want to See

How to impress lenders

Make the most of your credit reports, what hurts your credit score -- and how to improve it.

By Jonah Freedman, MONEY Magazine

NEW YORK (MONEY Magazine) - Evan Hendricks wants to arm you with knowledge. His exhaustive Credit Scores and Credit Reports is a new, plain- English guide to what consumers need to know about this arcane topic, a strange universe filled with pitfalls and fine print that makes the tax code read like Dr. Seuss.

As the book makes clear, it's a subject we ignore at our peril: Credit scoring is more than ever having a serious effect on all our lives.

So we asked Hendricks for tips on improving and protecting our credit status, plus how best to take advantage of the new Fair and Accurate Credit Transactions Act (FACTA), which is being touted as the best tool in a long time for those who are using credit but are anxious about identity theft.

Q. Is FACTA all that important? Will it make a big difference to most people?

A. It's a big deal. The first thing this law does is give everyone the right to free credit reports. There's also a requirement that when you apply for a mortgage, the lender must give you your credit score and show you the report it's based on. And it beefs up the system of fraud alerts to help protect against identity theft.

Q. What should you do with your free credit reports?

A. Checking that your credit report doesn't include any credit cards or loans that you didn't apply for is the best tool you've got against ID theft. Also, checking your report helps to make sure that your credit score is being calculated on the basis of accurate information. And that matters: The lower your score, the more you pay for a loan.

Q. Can you clarify those terms? What's the difference between a credit report and a credit score?

A. Your credit report is a detailed dossier of your whole financial life. It lists all your open credit lines and shows who has looked at your credit report and for what reasons. The credit score is an assessment of your creditworthiness boiled down to a single number that lets potential creditors make a quick judgment on you.

Q. Do you have to check both?

A. Focus on your credit report, which you should check three or four times a year because the information can change constantly. Once a year isn't enough anymore -- but doing it once a year is better than doing it only every two years. FACTA created a centralized source ( to get one free report per year from each of the major credit bureaus. So far, only residents of the western states are eligible. Midwestern states will be eligible on March 1, southern states on June 1, and eastern states on Sept. 1. You can elect to get one, two or all three reports at once. The best way to monitor your credit is to stagger your requests and get one report every four months.

The site started operating in December, so there are still a few glitches. It's going to take some patience. But with these free reports, there's no excuse not to become more involved with your credit reports.

Q. What do you do if you see a mistake?

A. Dispute it. There's a form attached to your report - - use that, and then you can also attach a very concise letter to explain your case, plus any supporting documentation. Send it to the credit bureau by registered mail and request proof of receipt.

Once they receive it, they have 30 days either to verify that what's on there belongs there or to remove the item from your report. If you don't hear from them in about 40 days, you win by default. Write another letter saying, "Thank you for agreeing to delete that item, pursuant to the law." One shortcut is to get the creditor to provide a letter saying you're right and this no longer belongs on your credit report. The bureaus will believe the creditor before they believe the consumer.

Sometimes it works the way it's supposed to. But I've seen cases where the only way people could get mistakes off their credit report was by filing a federal lawsuit.

Know the score

Q. And what about checking your credit score?

A. It's good to know where you stand, but you really only need to check it if you're planning on making a major financial transaction in the next 60 days: a home loan, a refi or an auto loan.

Make sure it's a so-called FICO score -- that's the one used by 75 percent of lenders. [It's a creation of the Fair Isaac Corp., and it's available at for $7.]

Two of the major credit bureaus sell their own versions, but those are knockoffs. They're fine if you want a general idea of where you stand. But if you're getting ready to make that transaction, get your FICO score.

Q. What are some common missteps that bring down your score?

A. Balance transfers on your credit cards, for one thing. It may seem smart to load all your debt onto one low-rate card. But if you max out on a high-limit card, your credit score takes a big hit. Even if you aren't applying for more credit, your current credit- card companies may raise your interest rates because your credit score dropped.

The whole instant-credit thing also hurts your credit, like when you're at the Gap and they say you get 10 percent off if you apply for a credit card and buy this thing using your new credit card. You have the combined effect of an "inquiry for new credit" and a small credit limit on the store card, which you already filled up. Both are bad.

The other thing you have to watch out for are collections, the leading type of which is medical collection. Many of those are mistakes -- often an insurance company is responsible for a co-payment, but the doctor bills it to the patient and it ends up becoming a collection.

It's not your fault, but it will show up on your report and become bad news. Then you have to dispute it with the bureau, preferably with documentation from the doctor.

Q. Can you really improve your score?

A. Absolutely. But you can't do it instantly. It's like dieting: It takes patience and discipline. The first thing you can do is look at your balance/credit-limit ratio. The more you can do to get your balances down to less than 50 percent of your credit limit, the higher your score.

Then make sure the information on your report is accurate. Let's say you missed a 30-day payment deadline but your report has it down as 60 days late.

Fix it.

Q. I hear everyone looks at credit scores these days.

A. Yeah, anybody with a so-called permissible purpose, which has historically meant primarily creditors, insurers and employers. But we're seeing credit scores used for more and more purchases. Utilities and wireless-phone providers, for instance, are starting to get into it. Half the time, they don't even tell you they're running a check. And credit- card companies are getting prescreened lists from the bureaus.

Q. Is there any way to keep your name off some of these lists?

A. Yes. You can call 888-5-OPT-OUT. It's a joint entity operated by the three major credit bureaus.

Q. So given what you do for a living, you must have a perfect credit score, right?

A. It looks pretty good, but I have one 30-day and one 60-day late payment from 1999, both on a Sears account. I tried disputing them, but I didn't get anywhere, so I gave up -- it's old enough that it's not seriously impacting my credit.

How Credit Scores Work, How a Score Is Calculated


Ever wonder why you can go online and be approved for credit within 60 seconds? Or get pre-qualified for a car without anyone even asking you how much money you make? Or why you get one interest rate on loans, while your neighbor gets another?

The answer is credit scoring.

Your credit score is a number generated by a mathematical algorithm -- a formula -- based on information in your credit report, compared to information on tens of millions of other people. The resulting number is a highly accurate prediction of how likely you are to pay your bills.

If it sounds arcane and unimportant, you couldn't be more wrong. Credit scores are used extensively, and if you've gotten a mortgage, a car loan, a credit card or auto insurance, the rate you received was directly related to your credit score. The higher the number, the better you look to lenders. People with the highest scores get the lowest interest rates.

Scoring categories:

The scale runs from 300 to 850. The vast majority of people will have scores between 600 and 800. A score of 720 or higher will get you the most favorable interest rates on a mortgage, according to data from Fair Isaac Corp., a California-based company that developed the credit score. (Its own score is called the FICO score.)

Fair Isaac reports that the American public's credit scores break out along these lines:
Credit score Percentage

499 and below 1 percent

500-549 5 percent

550-599 7 percent

600-649 11 percent

650-699 16 percent

700-749 20 percent

749-799 29 percent

800 and above 11 percent

What's the big deal?

Your credit score will determine if you get credit at all, and the interest rate on that credit, says Ed Ojdana, president of Experian Consumer Direct, part of Experian, the largest of the three major credit- reporting agencies. "The better the score, the lower the interest rate and that can save you a ton of money."

The difference in the interest rates offered to a person with a score of 520 and a person with a 720 score is 3.45 percentage points, according to Fair Isaac's Web site. On a $100,000, 30-year mortgage, that difference would cost more than $85,000 extra in interest charges, according to's mortgage calculator. The difference in the monthly payment alone would be about $235

Powerful little number:

If you rented an apartment, got braces, bought cell phone service, applied for a job that involved handling a lot of money, or needed to get utilities connected, there's a good chance your score was pulled.

If you have an existing credit card, the issuer is likely to look at your credit score to decide whether to increase your credit line -- or charge you a higher interest rate, according to a credit scoring study by the Consumer Federation of America and the National Credit Reporting Association.

Buying a car? Most car dealers want to know your credit score when you walk in the door, says Bob Kurilko, vice president of marketing and industry communications for, an online consumer resource for automotive issues. "They want to know how they can put a loan together for you."

The score has made it easier for many people to get credit, Kurilko says. Before, it was up to individual lending institutions to come up with their own criteria, he says. "They would hedge their risk and tend to go conservatively. It's opened up lending to a lot more people."
Consumers' rights:

Until recently, many Americans didn't even know this number existed because it was a closely guarded secret in the lending industry. In fact, lenders were prohibited from telling borrowers their credit score. The line of reasoning: The number was the result of analyzing complex financial data that the layperson would have difficulty understanding. Plus, if people knew their score (according to the industry mindset at the time), they might be able to change their behavior to manipulate the score and throw off the whole model, rendering it useless.

All that changed a few years ago, when consumers began finding out about the score and demanding to see it. In an unprecedented move in 2000, online lender E-Loan offered to give consumers their scores for free, with information explaining how the score is calculated and how they might improve it. Fair Isaac responded by cutting E-Loan off from its source of credit reports, effectively crippling its ability to lend money. E-Loan stopped giving away credit scores.

Public outcry on the possibility of people being denied credit based on bad information in credit reports led to several pieces of legislation -- and a much more open attitude about credit scores.

Fast forward to current day: Not only can consumers buy their score online from any number of sources, but they are now entitled to one free credit report per year. Consumers in western states can begin requesting their free annual credit report Dec. 1, but if you live on the East coast you'll have to wait until Sept. 1, 2005. To find out when you become eligible to receive a free credit report, check out Bankrate's map.

Key factors of your score

Just what goes into the score? Everything in your credit report, with different kinds of information carrying differing weights, says Fair Isaac consumer affairs manager Craig Watts. The model looks at more than 20 factors in five categories.

1. How you pay your bills (35 percent of the score)

The most important factor is how you've paid your bills in the past, placing the most emphasis on recent activity. Paying all your bills on time is good. Paying them late on a consistent basis is bad. Having accounts that were sent to collections is worse. Declaring bankruptcy is worst.

2. Amount of money you owe and the amount of available credit (30 percent)
The second most important area is your outstanding debt -- how much money you owe on credit cards, car loans, mortgages, home equity lines, etc. Also considered is the total amount of credit you have available. If you have 10 credit cards that each have $10,000 credit limits, that's $100,000 of available credit. Statistically, people who have a lot of credit available tend to use it, which makes them a less attractive credit risk.

"Carrying a lot of debt doesn't necessarily mean you'll have a lower score," Watts says. "It doesn't hurt as much as carrying close to the maximum. People who consistently max out their balances are perceived as riskier. People who never use their credit don't have a track history. People with the highest scores use credit sparingly and keep their balances low."

3. Length of credit history (15 percent)

The third factor is the length of your credit history. The longer you've had credit -- particularly if it's with the same credit issuers -- the more points you get.

4. Mix of credit (10 percent)

The best scores will have a mix of both revolving credit, such as credit cards, and installment credit, such as mortgages and car loans. "Statistically, consumers with a richer variety of experiences are better credit risks," Watts says. "They know how to handle money."

5. New credit applications (10 percent)

The final category is your interest in new credit -- how many credit applications you're filling out.

The model compensates for people who are rate shopping for the best mortgage or car loan rates. The only time shopping really hurts your score, Watts says, is when you have previous recent credit stumbles, such as late payments or bills sent to collections.

"Then, looking for new credit will be seen as an alarm because statistically, before people declare bankruptcy and default on everything, they look for a life preserver," Watts says. Also, if you have a very young credit file, an inquiry can count for more than if you've had credit for a long time.

What doesn't count in a score-The scoring model doesn't look at: - age

- race
- job or length of employment at your job
- income
- education
- marital status
- whether or not you've been turned down for credit
- length of time at your current address
- whether you own a home or rent

A lender may consider all those factors when deciding whether to approve a loan application, but they aren't part of how a FICO score is calculated, Watts says.

Credit scores are not perfect The major drawback to credit scoring is that it relies on information in your credit report, which is quite likely to contain errors. That's why it's critical that you check your credit reports annually, or at the very least three to six months before planning to buy a house or a car. That will give you sufficient time to correct any errors before a lender pulls your score.

Watts says that the need for accuracy in credit files is one reason why it's good for consumers to learn about credit scores. "There's a hope that as consumers know about credit reports and scores, they'll do more to correct errors and provide more oversight," he says. "If consumers can police the accuracy of their own reports, everybody gains."

Want to get an approximation of your score? Bankrate and FICO have teamed up to create the free FICO Score Estimator.

May 17, 2005


Top 10 Secret Tricks that Credit Cards use to Grab Your Money

Top 10 tricks

But knowledge is power, and if you want to avoid getting squeezed, you should be aware of the top 10 money-grabbing tricks credit card companies have up their sleeves:

The Universal Default penalties.

Card issuers regularly check their customers' credit reports for late payments on any of their bills. Any late payment can be used as an excuse to trigger a hike in your credit card's interest rate, even if you have never made a late payment to the card issuer.

A recent study by Consumer Action, a San Francisco-based consumer advocacy group, found that 39% of credit cards had universal default penalties in 2003. This year the figure jumped to 44%.

Bait-and-switch card offers.

Direct mail offers generally advertise the issuer's premium card at an eye-popping low interest rate, while the fine print says the company can issue a more costly non-premium card with a higher annual percentage rate if you fail to qualify for the premium card. Just because you apply for a card with a low rate doesn't mean the card that shows up in the mail actually carries that low rate.

Shrinking grace periods.

Historically, grace periods -- the time during which your transactions don't accrue interest -- were 30 days. They now average 23 days, and some issuers have whittled the grace period to 20 days. Some cards have no grace period at all.

Two-cycle billing.

While most card issuers use the standard one-month method to calculate interest charges, some use a method that calculates interest on two previous months' balances. Companies compute interest charges on your average daily balance by adding each day's balance and then dividing that total by the number of days in the billing cycle. Some do it on a monthly basis, but others use the average daily balance over the last two billing periods.

If you carry a balance, this usually means that you've lost any grace period on your new purchases. Unless you pay off your balance for two months in a row, the two-cycle method will include the prior cycle's average balance in calculating your finance costs even though you paid off that cycle's balance in full. You don't face that expense with a single-cycle card.

Inactivity charges.

Credit card companies don't make money if you don't use your cards. Keeping your card in your wallet could incur a hefty fee, as much as $15 if you haven't swiped your card in six months, but charges may be incurred for shorter intervals.

Late payment fees.

A recent study by Vertis, a marketing company that researches consumer credit usage and payment habits, found that 2% of all credit card holders occasionally miss getting their credit card payment in on time. They pay dearly. The national average is $29. MBNA (one of the largest issuers of credit cards), Bank of America and Providian are among the steepest chargers.
Their late-paying customers get squeezed $39, according to Consumer Action.

And there's yet another downside to paying late:

Higher interest rate.

In a 2003 survey, Consumer Action found that just one or two late payments will trigger a higher interest rate. Over-limit fees. Exceed your credit limit by even one cent and you'll be hit with over-limit fees of $25 to $39. Cruelly, a $39 late fee can then trigger a $39 over-limit fee.

Balance transfer fees.

It's the big tease: A rock-bottom introductory rate to transfer your balance, but that tantalizing low rate may come with a steep transaction fee, 3% to 5%, for transferring your balance to their card, which means transferring $1,000 at 4% will cost you $40. "It's really very tricky," says California attorney Howard Strong, author of "Credit Card Secrets." He adds, "They have all these sneaky fees. You need to be extremely cautious." By the way, last year, the industry took in $43 billion in fee income, up from $39 billion in 2002, according to R.K. Hammer Investment Bankers. The industry's take is expected to increase again this year.

Mandatory arbitration.

"If there's a dispute, you may have given up your right to your day in a court of law," says attorney/author Strong. "If that's the case, your only recourse is mandatory arbitration."

Payment allocation.

If you're carrying a balance and use your credit card for purchases and cash advances, or you're paying off a promotional rate and then add charges beyond the promotional period, your card company will first allocate your payments to the charges that will earn it the most money. In most cases, that means it will apply your payment to the balance that has the lower rate, thereby allowing the balance with the higher rate to accumulate and compound interest.

-- By Peter Davidson

May 5, 2005


How to Stop "Being Eaten Alive" by Credit Card Debt


Too much debt is an overwhelming and devastating experience. Being in heavy debt has destroyed many relationships and leaves most people crushed by their financial burden, uncertain which way to turn. Don't feel alone, although not everyone will discuss it, most people will suffer financial difficulties at some point in their lives and end up relying on credit to get them through.

Years ago, before the credit industry boom, most families and individuals carried little to no credit card debt. The combination of declining buying power, rising costs and easily available credit has changed that dramatically. The average American family now carries unprecedented amounts of debt. When this debt load is combined with one of the lowest savings rates in the industrial world it does not take a genius to understand why our bankruptcy rates have soared over the last 5 years. All it takes is a drop in income, a family emergency or medical issues and severe financial problems can arise. 30 years ago most Americans, without heavy debt loads and with some decent savings, were able to weather a few storms and get back on their feet. Today, most Americans are just one emergency away from financial disaster.

It's a sad fact that only 5% of Americans have been able to adequately prepare themselves for retirement. The other 95% reach retirement age with under $5,000 in savings, utterly unprepared for a decent retirement. They face an uncertain future, dependent on the state, friends or relatives to support them. Should that support fail there is little choice but to live a poor life or to continue working until they literally work their way to death.

Why is this happening when the average person will earn in excess of one million dollars in their lifetime? Where does all this money go when you have practically nothing to show for a lifetime's work and effort?

Sure the cost of living has gone up dramatically, but so have wages. Not only that but most American families earn double incomes today; this was not the case 30 years ago. The biggest change has been the explosion in credit card debt and interest payments. Credit card companies are racking in record profits every year with profits in the ten's of billions of dollars. Additionally it is a proven fact that credit card buyers spend at least twice as much as their cash paying counterparts. The combination of debt servicing and consumer overspending has created a sad picture in many American families.

It may be hard to believe but payments on debts now account for 92% of the average family#s disposable income. When you consider that the majority of that money goes not to paying the debt down but to interest it is not hard to figure out where your savings and retirement money is going.

Nor is today's youth being provided with the proper education to survive financially. As a matter of fact; credit card companies launch major campaigns aimed directly at college students. They recruit other students to sign up their friends and fellow students for credit cards. They encourage them to start borrowing money at an early age and actively promote the use of credit cards for every day items such as groceries and gas. Why would financial institutes grant credit to borrowers that may not even have an income or means of repayment? The card companies now that if they can hook them early on to the habit of buying on credit that they have them for life.


Most people are very aware of the drain that credit card interest puts on their finances. What is often overlooked however is the overspending that occurs from the simple fact of having a credit card available. Stop and think for a moment, why would a department store be so eager to pass out credit and run the risk of collection losses when they could simply be paid in cash? Because they know that customers with credit will spend significantly more than cash paying customers. Multiple studies have proven that identical consumers, when given available credit, will vastly overspend. A cash-spending customer at the mall might spend $100, but given a credit card will often spend double or even triple that amount. As you are reading this article now, you probably have reality on this very fact. Based upon this proven fact, most debt accumulated as the result of having credit available, and not so much because credit was needed to fund a critical need in one's life.

Now lets take a look at the impact of credit card interest upon this overspending. Ask yourself, would you want to pay $75 for a tank of gas? How about $27 for a movie ticket? Of course that popcorn would cost you another $15. Sound ridiculous, doesn't it. What most people don't realize is that they pay more than 3 times the cost of an item when purchased on a credit card and only the minimum payments are being made. How can you get ahead if you're paying 3 times the asking price for things you've purchased? Think twice when you pull out the plastic to pay for another pair of jeans, if you can't afford to pay cash for it now, why pay triple the cost over the next 10 years-you won't even be wearing them then!

Credit card interest is much worse than most people would like to think. If you do not pay off the entire balance, but instead pay only minimums the majority of your payment is gobbled up by interest. If you are like most people and continue to add charges to the cards, then the balances just grow and grow. As the payments are being made on time, the bank rewards you as a valued customer with a higher credit limit. Following this pattern is what has created the debt trap that millions of Americans find themselves in today.

When you walk into a store and buy a TV on credit two things take place. First, 9 out of 10 consumers will spend double or triple what they would have spent had they used cash. Now instead of a cash purchase of $700, they have spent $2,000 and are in debt. Even if they never paid a penny in interest they have overspent $1,300. With steady minimum payments they could easily end up paying over $5,000 for a TV, which 5 years later might be worth $200!

If you had waited until you had the cash available before you purchased that TV, you could have bought several for the price of just that one. Lets look at the flip side of the coin, what if one paid cash and put the overspending and interest into an investment account?

For the sake of argument we will assume you have purchased a $2,000 TV, that you are paying a high interest rate and that you are only making minimum payments. Under these conditions it can actually take 30 years to pay off a card.

Now lets assume that instead you put the monthly payments that you're paying for that TV set into a mutual fund with just a 10% compounding interest rate. Voila! Over the same period of 30 years the mutual fund would grow and accumulate to roughly $200,000. Wow, that's an expensive TV set! Now does buying that TV set seem so cheap and urgent as it originally was?

To become financially free you need to become an earner of interest instead of a payer of interest. What do you think the credit companies are doing with your money? That's right, they are investing it and earning the interest on that money instead of you.

Lets keep things equal. Scenario one; One has about $50,000 in credit card debt at a lovely, low rate of 10%. One continues making steady payments of $500 a month, without fail. After 20 years of these above minimum payments one would be out of debt, but have nothing to show for it. Scenario two; one starts with $0 but every month puts that same $500 into a mutual fund account earning that same lovely rate of 10%. 20 years later Scenario One has an empty wallet while Scenario Two has over $350,000 in the bank. Ten years later that same fund has tripled in value to over $1 Million dollars!

Number of Years

Monthly payments
$ 300
$ 59,959.00
$ 369,997.00
$ 618,852.00
$ 400
$ 79,945.00
$ 493,329.00
$ 825,137.00
$ 500
$ 99,931.00
$ 616,662.00
$ 600
$ 739,994.00
$ 700
$ 863,327.00
$ 800
$ 986,659.00
$ 900
$ 1,000

Based on Monthly Payments Placed into a Compounding 10% Growth Mutual Fund

No wonder the banks call you a valued customer, based upon the above you are worth millions to them over a lifetime of credit card payments!


Credit companies are constantly pushing the concept that you must have a perfect credit rating or you will not be able to survive in today's world. This is all part of the trap and banks are doing a fantastic job at spreading the news. To build a good credit rating you're normally recommended to borrow money on a credit card and it's suggested to make only the minimum payments on it. That way the banks will trust you and give you more credit. See the catch?

Of course there is nothing wrong with a good credit report, it certainly beats having a bad one. But its value can also be vastly over rated and a good credit report is NOT a substitute for real wealth.

In an effort to preserve a good payment history people will allow their lives to become a living hell. Working two, even three jobs, neglecting their health, their family and their future retirement. All for the purpose of keeping keep the credit card companies happy and profitable. Think about it, the only reason you really need a good credit history is so you can borrow more money. That is its main purpose, to allow banks to decide who to loan money to, how much to loan them and how much interest to charge them.

Now is a good time to think about how much do you really need credit to survive? Add up how much you spend a month in payments. Then multiply that by 12 and see how much cash you could be putting into savings each year. Look back at the chart above and see how much actually wealth is being lost by overspending and interest payments.

We have been given a lie - the lie is that credit is good for you and can help you live a wonderful life. If you consider paying bills a better life, paying three times as much for things you probably don't even need, giving up on the things you really want to do because your life is bound by endless commitments to banks and credit cards then go ahead and continue using credit to finance the better life.


On the other hand, picture a life without debt. It is a fact that people without debt survive better. They are able to save money and have resources to fall back on. They do not stress out just because the car needs an overhaul or the kids need braces. The money is there and life's pitfalls can be solved. The quality of life and increased freedom to follow ones goals, unchained from debt, increases vastly.

Face it, credit card debt is like a cancer that eats away at your life and saps your energy and drive. To free oneself of this vicious circle and become debt free requires more than a simple change of habits. Unfortunately we have been taught the falsehood that credit is a wonderful thing, it gives us a better life and a higher status. To change the course of one#s life it is important to rid oneself of key falsehoods.

A very fundamental truth is that personal happiness is not built upon a life of debts and living beyond ones means. Take a moment and look this over. If you agree then now is the time to make the decision:

"I am sick and tired of enslaving my future to credit. My personal happiness and life is more important than a pocketful of credit cards. I would rather have cash in the bank and live a life free of debt than a glowing report card from an uncaring bank and a pocket full of plastic."


Take a look at what a bank does when they offer you a credit card of $5000. Have they just given you $5000? Not at all, they are not giving you anything. Credit adds not a penny of real wealth but factually does the opposite by creating a negative wealth. It creates an illusion of wealth and allows you to bring things into your life quicker than might otherwise have been possible. However, the true cost of this short cut is much higher than you realize, or you would not have taken it. Yes, you can live at a higher level temporarily but not without a great cost to your future.

Once you have examined the falsehoods that credit card companies have taught us and made the decision to change, it is time to take action and change. The reason that we are explaining all of this to you is to get across the fact that credit is not the friend that it has been made out to be. You need to eliminate your debt and stay away from credit. It's a hard thing to do; and getting rid of the cards can sometimes be an uncomfortable experience. However, if you want to become financially free this is what you to need to do. The myth that you need to have a large income to become wealthy is not true. What is true is that one MUST spend less than they make and one MUST be free of debt.

Don#t stay caught in the credit card trap. Don't continue with the belief that your credit has to be perfect or your life will fall apart. Don't live in terror of the credit card companies and believe they have your best interests in mind.

It#s difficult to break the financial foundations that you were brought up with, but the rewards are well worth the effort.

Regardless of which path you choose, it is time you break free of the debt trap and demand of yourself a better life.


MY goal at SPONDULIQS is to get your unsecured debt settled and gone.

Equally important to us is that this occurs quickly. It is very common for most debt negotiation companies to structure programs that take 36 to 60 months to complete. With very few exceptions all of our programs are structured for 30 months or less. We know that the faster we can get a client out of debt the sooner they can start building a real life for themselves.

We also are adamant that our clients learn the wealth building discipline of saving money. For this reason we set ourselves apart from most other companies and insist that the client save money into their own personal savings account, the proceeds of which are used to settle their accounts with creditors. By trusting them with their own money and building the habit of saving money and living within their means our clients complete our programs quickly and properly set up to begin the rewarding route to building true financial strength.


This is a brief look at the basic choices you have in dealing with debt. With the exception of #4 (Continuing doing what you are doing) they all have validity. The key is in determining which is right for you and your unique circumstances. We deliver a free consultation to help determine which choice is best suited for you and factually recommend other solutions to a vast number of those that we consult.

1. Consumer Credit Counseling (CCC)

CCC companies are well suited for individuals that can afford to pay above minimum payments for roughly 5 to 7 years.

They have the key advantages of a) generally lowering interest rates and b) stopping most creditor harassment. If the debtor is able to continue making the higher payments for the length of time agreed a CCC will get them out of debt.

They do have disadvantages as well. The key ones are a) they do negatively affect your credit, b) they are notorious for sending late or missing payments to creditors as well as making mis-payments to the wrong creditors, c) they are lengthy d) they do require start-up and monthly service fees and e) if one is already struggling to make payments they often end up in failure # in fact the majority of CCC clients fail to complete the term of the program.

One should also understand the nature of the CCC business. The CCCs were not established by non-interested parties, which wanted to assist troubled debtors. The very same credit card companies established them as a means of recovering bad debt before it went to bankruptcy. The banks pay the CCCs based upon how much they collect from debtors. Originally they were paid 15% of what they collected; currently the industry average is 8%. This is on top of the monthly service fees that a debtor pays to the CCC.

Although CCCs are not working against you, they are paid by the banks for collecting money and are primarily a collection arm of the banks.

To be accepted on a CCC the credit counselor first looks at your financial situation and takes all your credit card information. The information is submitted to your creditors and if accepted you begin to make one monthly payment to the CCC. The CCC is responsible for sending a portion of each payment to each of your creditors as agreed.

CCCs do not negotiate lower interest rates or payments from the banks. They are given pre-arranged interest rates for CCC programs from each bank as well as set payment amounts. There is no bargaining or negotiating done by the CCCs; they are simply a payment and collection arrangement established by the banks, but run by independent companies. Usually the interest rate averages around 8 - 12% and the payments hover in the 3% of the debt amount. Keep in mind that not all banks will even participate in a CCC program and so lower interest rates are not guaranteed on all of your cards.

If you are accepted into a CCC program, the first thing that happens is all your cards are cancelled. You will pay the consumer counseling company one check and they pay the creditors on your behalf. This is the most commonly heard complaint about CCCs, that they fail to make proper payments, consistently and promptly.

If you are already experiencing difficulties maintaining payments the problem with this plan is that your monthly payments are probably going to be higher than the original minimum monthly payments on the cards. If you're already having trouble making the monthly payments, how are you going to pay the higher amount? Most CCC programs will drop you when you have gone late, or failed to make payments several times. This leaves the individual back at square zero and is the principal reason for CCC program failure and extended program lengths.

2. Debt Consolidation Loans

Remember one thing - You Cannot Borrow Your Way Out of Debt!

Consolidating your debts into one easy, low payment is the most common solution people think of when they fall victim to financial problems. In most cases it is a quick fix and a long-term DISASTER. The sad fact is that over 80% of people who obtain a debt consolidation loan find themselves in really deep debt and far bigger trouble than they were before. The reason this happens is simple.

A debt consolidation loan does not reduce the amount you owe nor does it solve the reasons debt was created in the first place. Most people consolidate the debt, and then run up new debt with the extra money they have each month. Within a year, two at the most, people find themselves in double debt. They now have the old debt stretched out over 30 years plus a fresh batch of credit card debt. Only this time they have no borrowing power left and must declare bankruptcy or face other dire life choices.

Worst yet is if the consolidation loan was secured against a home, as most are. You have now traded unsecured debt for secured debt. With credit card debt there is truthfully little most creditors can do to get their money back, and seizing your home is relatively impossible. However with a consolidation loan secured against you home, the home is the guarantee for the loan and you stand a very strong risk of losing your home.

If you choose this route follow these two rules:

Cancel ALL credit cards and lines of credit that can be easily used. If you must keep one for emergencies, but lock it up and ONLY use it for emergencies. Then continue making the highest possible payments to the loan and get it paid off!
Absolutely do NOT secure that loan against your home, unless you are completely confident that your life circumstances will allow you to continue making all payments until that loan is paid off and your property cleared.

In most cases debt consolidation is not a way out but a way into deeper trouble, use caution and discipline if this is the route to debt handling you choose. And don#t be fooled, you are NOT getting out of debt, just shuffling it somewhere else.

3. Bankruptcy

The pressure bought to bear by collection agencies and creditors is the main trigger for most people to file bankruptcy. This harassment, combined with the stress from never ending debt, has driven record numbers of people into the bankruptcy courts. There were over 1.6 million bankruptcies last year (a new record); and a majority of them would not make the same decision again if they had the choice.

Additionally, bankruptcy laws are constantly changing making it more difficult to take the so-called "easy way out". Due to the pressure by the credit card companies and financial institutions, Congress is reforming the laws to make it harder for consumers to seek protection through bankruptcy.

In most situations, bankruptcy is often not even necessary. Not only is your credit completely destroyed through bankruptcy for 10 years, but you might hinder yourself in many other major areas of your life, such as finding a job, buying or even renting a home, acquiring insurance, obtaining security clearance and buying or leasing a car. Many people do not realize that it stays on court records for the next 20 years and many vital application forms require you to truthfully answer this question: "HAVE YOU EVER FILED FOR BANKRUPTCY?" In effect, it stays with you for the rest of your life.

Depending on what type of bankruptcy you declare, you could find yourself forced to make payments by the court, paying your entire debt back with additional interest as well as paying the court appointed trustee to make your payments to the creditors. This does not include the thousands of dollars you could end up paying the attorney for his part. All of that is apart from the extensive work it will take to repair your credit.

There are cases where bankruptcy is the only option. It does have the merit of allowing an individual in a relatively hopeless situation to make a new start. However in many cases it can be avoided and is never a decision to make lightly.

4. Continue What You're Doing

Yes, this is an option, and one that is the "default" choice of many people. There are many reasons to just attempt to carry on and hope things will get better. Sometimes it is the desire to avoid the embarrassment, humiliation and stigma that are sometimes associated with CCC program or bankruptcy. Often is the misplaced importance of salvaging one's credit at any cost. Or it could be the reluctance to make a decision and commit to a new course.

Without a drastic change of circumstances this route runs head-on into the creditors and collection agencies. Once you fall behind, late fees and penalties dramatically inflate the debt. You are no longer a "valued customer" and treatment progressively becomes more hostile. Suits, liens and garnished wages all become possibilities. The harassment alone drives many consumers into the bankruptcy courts in an effort to bring a stop to the continuous phone calls, abusive letters and garnished wages.

Unfortunately, deciding not to face the debts, not paying or just struggling along with the minimum payments will eventually catch up with you. When it does you're almost always left in a worse situation than before.

It can be very demoralizing to make minimum payments only to realize that the majority of your payments are for credit card interest. Wrestling with constant debt and harassment from creditors is not the way to live and should definitely be avoided if at all possible.

5. Debt Reduction and Negotiation

The concept of negotiating with a creditor to obtain a reduction and settlement is probably as old as debt itself. However getting out of credit card debt is not the same as negotiating with a friend or associate to resolve a personal debt. There are several elements that are key in ensuring a successful debt negotiation program.

These key elements are:

1. The individual has experienced a hardship in their lives that has impacted their ability to repay the debt

2. There has not been significant recent card activity

3. The individual would not be able to continue making payments as agreed for the length of time required to pay off the debts

4. The individual has decided to stop making the payments directly to the creditors, preferring to save what money they can to settle the accounts and get out of debt

Any program has disadvantages as well. The disadvantages are that it does not immediately stop creditor calls and until the account is settled there is the risk of creditor collection activities such as judgments and suits. Most individuals starting on a debt reduction program are already experiencing a negative impact upon their credit report. Debt reduction involves falling behind on payments and this does have a negative effect upon ones credit report, which then needs to be repaired or rebuilt after one is debt free.

My "Disclosure Letter" is one of the initial forms you need to return to us and covers these possible negatives in greater detail.

Choosing the right company is a very important factor in ensuring a successful program, after all they will be representing you to the creditors and bearing much of the responsibility in settling your accounts.

My website includes a very extensive checklist of what to look for but in brief here are the most critical points to look for:

1. The company you choose does not hold your money, you retain control and possession of your money

2. The company does a complete job of qualifying you for this program. If they only present the positives and seem to be willing to accept "one and all" then that is a poor company to choose.

3. The program should not be estimated at longer than 30 months, in extreme hardship cases this could extend to 35 months. A longer program presents too many disadvantages to the consumer.

4. The company you choose should disclose the negatives as well as the positives. Being informed is a large part of learning to master your finances.

5. The fee structure should be based upon performance and be paid for the most part AFTER settlements are arranged.

Please visit our website for more in-depth information on choosing a company, or ask your consultant for a report to be emailed to you.

How We Can Help

We deal with your creditors, relieving the pressure of handling the harassment and stress associated with financial problems.

If you are already in deep trouble, now is the time to call. It is my mission to get you out of debt and keep you there. I have helped 100's of people just like you to become debt-free and live a happier life free from financial stress and problems that accompany financial debt.

We historically have settled thousands of accounts for hundreds of clients at an average of 60 cents on the dollar - this includes my fees. My clients have been in a net savings position as a result of My program, in effect this program has cost them nothing beyond what they would have paid anyway and has gotten them out of debt.

My program does not shuffle debt; it reduces it and pays it off. One of the key benefits is that you learn to save and live on a cash basis. This habit alone can create a very strong financial future for you. This one factor is unique to debt negotiation programs, other programs do not teach this vital skill to living well for the rest of your life.

Decide to create a debt-free life for yourself, avoid becoming one of the 95% of the population that reaches retirement age unprepared and dependent upon others for their survival, now is the time to take action.

You will not become debt-free or independently wealthy while you are using credit. It's okay to break away from credit and start using cash again. Don't keep doing the same thing over and over again. That's what got you into the trap to begin with and is keeping you stuck there. Be free of debts and credit cards and start on the road to real wealth.

I am here to help so call today.

May 4, 2005


Expected Credit Effects

Here's a description of the differences between CCC companies and negotiation agencies. CCC's are funded by the creditors; their job is to attempt to lower the interest rates of credit cards, collect one monthly payment from the consumer and then disburse it to your creditors each month.

Rule of thumb is 2.5% of your debt amount will be required each month; it will take around 60 months to eliminate the debt; your creditors will be reporting you as in a hardship program and will rate you "R7", which is the same category as a chapter 13 bankruptcy. It affects your chance of getting a home loan, as bankers are trained to decline CCC participants.

Our program is a debt negotiation program; also known as debt elimination, debt reduction, debt settlement. We work for our clients to get creditors to reduce the principal balance down to about 35 -40% of what it currently is; 55-60% with all payments and fees. We are here to help those who have had a hardship handle their situation and become debt-free.

A hardship can be any set of circumstances that have changed, leaving one in a financial bind. The only way to successfully communicate a hardship to a creditor so that they will cooperate in lowering the balance is for you to make the decision to stop making the payments to the cards directly. Because of this, you will affect the payment history portion of your credit report, which accounts for 30% (only 30%) of your credit score. You will be able to purchase homes, vehicles, etc. after a program like this, although, in some cases, the interest rates may be higher.

Credit repair exists to clean up a report and works well in many cases.

I hope this has helped you and has answered your question. Feel free to contact me for more information or to pursue this further; ask for me when you call. I can also help you run through the math of the difference between CCC and debt negotiation, if you like. Click on the link below for an informative article about CCCs from Consumer Reports.

Please feel free to call if you have questions.

Best Regards,

Jae Burnham
Senior Debt Consultant
Professional Business Solutions
800/404-8687 ext. 286

May 3, 2005


10 Important Questions to ask Debt Settlement Companies

Starting in a debt negotiation program is the first step to your debt freedom. Finding the right company is critical to your success. Chances are you have never had to deal with a choice such as this before and are uncertain as to what type of questions to ask or what to look for.

To help, I have put together a list of questions to ask and things to watch out for when talking to a debt negotiation company. Before you sign up with any company you should be sure that they have your best interests in mind and are working to get you out of debt as fast as possible.

The 10 questions below are provided for your use in choosing a company. If you don't know to ask these questions it is likely that most companies won't cover all of them during your consultation. Make sure you are getting all of the correct information you will need to make an informed decision.

1. State of residence: Ask, "Does it make a difference what state I live in?"

The answer should be "Yes, it does". Every state has different laws and regulations about what the creditor can and cannot do. In a state such as Illinois for example, the laws are very strict and afford the consumer less protection than other states. This account would need to be handled differently than in a state that is friendlier to consumers.

2. Up-front fees: Ask, "Do you have up-front fees?"

Be sure to find out what portion of the initial payments goes to their fees rather than towards settling with your creditors. The first six months or so can be crucial in determining the success of a debt negotiation program. If the bulk of the initial payments are upfront fees then little is left for resolving your debt. Some companies charge up to 15% of your total debt in upfront fees, so find out. If they are vague, ask to see their contract.

3. Monthly Service Fees: Ask, "Do you have any monthly service fees?"

There is no reason that a company should charge a monthly service fee, other than to make money for the company. The key to a successful debt settlement program is speed of settlement. The more you pay a company prior to the actual settlement in "service fees" or "carrying charges" the less you have to settle with. Companies that charges ongoing service fees are less motivated to settle your accounts. A company may charge a modest set-up fee, but the bulk of its fees should be earned after a settlement has been reached.

4. Control of your money: Ask, "Do I keep control of my money in my own bank?"

Find out if you retain possession of your own money or if you send the company money to be held on your behalf. Ideally you would save the money towards settlement in your own personal account. If they hold the funds and send the payments on your behalf, then ask, "Are you licensed to do so?" In most states companies that make payments to creditors on a debtor's behalf are termed "Pro-Raters". As such they must be licensed. Also find out where you money is held and if you have access to it. You should ask, "What type of account statements will I receive?" One drawback to allowing a company to hold your settlement funds for you is that they can execute a settlement without your full approval. If you retain possession of your money then the settlement payment remains under your full control. With PBS you retain total possession and control of your money and what settlements you accept.

5. Possible legal trouble: Ask, "Could I get into legal trouble?"

See how they answer. Are they straightforward? Do they avoid the question? Do they say, "Why do you ask?" Creditors do have the right to pursue the collection process and you need to know your rights as well as what potential problems could occur.

6. Impact on credit score: Ask, "Will this affect my credit score?"

For many this is not an issue as their personal hardships and the financial burden debt places on their lives outweigh the value of a credit report. The truth is that a debt settlement program will have a negative impact on one's credit. Beware of negotiation programs that lead you to believe otherwise and promise to fix your credit or force creditors to give you a positive rating. A company MUST be licensed to engage in credit repair and should not hint to do so if they are not. At PBS our mission is to get you out of debt as fast as possible and to live free from the debt trap.

7. One person to deal with: Ask, "How many people will be working on my account?"

Will you get bounced around between all their different customer service personnel or will you have just one person who will be speaking to your creditors on your behalf? Some companies even hire outside people working from home to negotiate your debts. At PBS you are assigned a Case Manager and always have a direct line to your Case Manager and their assistant.

8. Program length: Ask, "Does it matter how long it takes me to get through the program?" "Will there be potential problems if the program goes on for a long time?"

You need to be aware that in almost all states, doing a program longer than 30 months can be dangerous for you. Spreading the program over 36, 48 or even 60 months will create legal problems, increase costs and increase the possibility of you filing for bankruptcy. The longer a program takes the higher the probability rises that you will experience failure.

Additionally longer programs result in reduced or negligible savings due to mounting credit card interest and fees. Some companies pay no regard to this and push you to get started so they can collect set-up and generate monthly charges. A debt settlement program should not exceed 30 months in length. The only exceptions might be in cases of extreme hardship, even then a projected program completion greater than 35 months is not recommended.

9. Handling creditors: Ask, "Does it matter which creditors I have?"

The wrong answer would be "no" or "not really". Any company that would say that is either inexperienced or is not being up front with you. All creditors act differently, settle differently and collect differently.

10. Qualification process:

This is not an item you would inquire about; it is one that you should observe during the sign up process or consultation. If the company does not do a thorough job of determining your suitability for a program then it is the wrong company for you. Debt negotiation is not necessarily the way to go for everyone - it is important to make sure that a company only enrolls those who need the service and qualify for the service. A company that adopts a "come one - come all" approach with new clients is doing a disservice to those in need. At a minimum the company should inquire as to hardship, recent card activity and your financial ability to save money as well as cover the points listed above.

Being in debt and financial trouble is never an easy position. In deciding upon the right remedy it is important to have the correct data. I would be happy to answer these and any other questions you have about debt negotiations. Please feel free to give me a call.

Best Regards,
Jae Burnham
Senior Debt Consultant
Professional Business Solutions
800/404-8687 ext. 286

May 2, 2005


Options for Getting out of Debt - Pros and Cons

Here is a short summary of your options for getting out of debt each with their pros and cons. If you have any questions please feel free to contact me. I look forward to helping you handle your debt situation.

Your Options for Getting Out of Debt - Pros and Cons

1) Keep making your minimum payments - assuming that you are able to do so.

Pro: You don't need to make any decisions or do anything, just keep making payments.

Con: The stress and worries in your life will just get worse and 5 years and experience shows that these debts never seem to get paid off. The stress increases, arguments get worse and the creditors get richer while you get poorer.

Con: It will take around 25-30 years to get out of debt and you'll repay over 5 times the original amount! Do the math. If you've carried these balances anywhere near 4 years you've probably already repaid the original amount charged.

Con: You will probably end up with nothing saved at retirement, struggling just to make ends meet and put food on the table. Unbelievably over 80% of the population believes that their standard of living will improve at retirement. Our experience - and statistics - shows it to be completely the opposite. Take action now or chances are that you will regret it in later years.

2) Borrow the money from a wealthy relative and then repay them.

Pro: The borrowed money is available immediately, usually without having to create legal documents and the interest rate and payment schedule might be very flexible.

Con: The stress continues because you now owe your relative the principal that you owed the credit card plus whatever interest your relative is going to charge you. You have not reduced or eliminated the amount of debt owed.

Con: It can often be disastrous to involve family or friends in your financial matters. Borrowing money will completely change the relationship between you and them, even if it#s your parents (the borrower is a servant to the lender). You have probably loaned or borrowed a small amount of money in the past with a friend and experienced the results, even if it#s only $20 or so.

3) Bankruptcy

There are two types of personal bankruptcy: The first type is Chapter 13 which is a reorganization of your finances that provides relief from creditors but allows a bankruptcy judge to determine how much you have to repay. This could be 10% to 90% of the original debt. The second type is Chapter 7 which is a total liquidation of assets to eliminate all debt.

Pro: It allows relief from the debt when you have no resources with which to repay and stops creditor harassment.

Con: Bankruptcy stays on your credit report for 7-10 years. It stays on court records for 20 years. However, bankruptcy can adversely affect you for life as it often shows up as a question on job applications and loan applications. ("Have you ever filed bankruptcy?")

Con: Most people that file for bankruptcy will get into financial problems again. A large majority said they regretted their decision and wish they had found an alternative solution.

4) Debt Consolidastion

Borrow money from a bank to repay the debts through a consolidation loan.

Pro: You can normally lower the interest rate that you are paying and have only one payment to handle per month.

Con: You cannot borrow your way out of debt. All the advertising you see saying "Eliminate Your Debts Through a Debt Consolidation Loan" is misleading you. You still have the debt; it's now just somewhere else.

Con: You are simply transferring the debt from one place to another. If the new loan is a secured debt against your personal property - such as your home - if any further tragedy hits, you now are in jeopardy of losing your home.

Con: Most consolidation loans have closing costs. If you take these costs into consideration, you might be paying more than you are now.

Con: Most people (80%) do not cancel their credit cards after getting the loan and so just end up going right back to using them. You then have the credit cards at their limit again and the loan to pay back.

5) Consumer Credit Counseling (CCC)

A CCC company has prearranged payment amounts and lower interest rates with most banks. The consumer pays a set monthly amount, which normally includes a monthly service fee, to the CCC and the CCC then disburses the payment to the banks. Typically, the CCC also earns money from the banks based on a percentage of the payment received.

Pro: On most accounts the CCC has a prearranged, lower interest rates with the bank.

Pro: You only need to make one payment per month to them.

Pro: You could be out of debt in around 6-7 years instead of 15-20 years if you continue making minimum payments.

Con: Some creditors do not deal with CCC programs, leaving you to make the payment to those creditors.

Con: CCCs have a low completion rate. Quite often this is due to the fact that the monthly payments can be higher than the minimum payments that you are currently paying.

Con: Some mortgage lenders are trained to treat a CCC on your credit report as a form of bankruptcy.

Con: Some of the most common complaints about CCC companies: a) the CCC making late payments to the creditors and b) the length of the program extending due to additional charges added to the account and interest rates increasing over time.

6) Debt Negotiation

If life has hit you with misfortune, debt negotiation could be a way to take responsibility for your debt without filing for bankruptcy.

Pro: You could be debt free for around 55-60% of your current balances including all payments and fees.

Pro: You could be out of debt in approximately 15 - 30 months.

Pro: The program will improve your debt to income ratio.

Pro: You will be legally and ethically eliminating your debt by making new agreements with the creditors based on your hardship situation and fulfilling that new agreement 100%.

Pro: You could be debt free and start getting ahead in life.

Con: The program cannot be done immediately if you have made very recent major purchases, substantial cash advances or balance transfers.

Con: You need to stop using credit. (Although, that really is a good thing!)

Con: It can adversely affect your credit rating.

Con: Creditor calls and collection efforts can continue until that debt is settled. In some cases, this could include the possibility of legal actions.

Best Regards,

Jae Burnham
Senior Debt Consultant
Professional Business Solutions
800/404-8687 ext. 286

This page is powered by Blogger. Isn't yours?

Subscribe to Posts [Atom]