It’s about time
There are times in our lives that we are not able to pay all our bills. Maybe we have lost a job, had a medical illness or other life circumstance. Not being able to pay your bills is one more stresser added to the mix.
I will give you my advice, but please know that you should check with your professionals for what is best for you and your situation before taking any action.
There are several types of bills categories we have:
Utility Bills – You may have noticed that these typically don’t appear on your credit. Yes, you are correct. When your utilities are paid on time, they don’t appear on your credit report. When you are late, most utility company will report the delinquent payment information to the credit reporting agencies. Or even worse, they may send the account for collection and that will appear on your report.
Credit Cards – This is a double-sided question. You want to be able to have credit in case you need it but you can’t afford to pay the credit card. The best possible option when you can’t afford to pay your bills, is to be able to pay the minimum amount due on all your credit cards each and every month. If not, then you want to contact your credit card companies to work out an agreement. You don’t want your credit card companies to send your account to collections and/or small claims court. Both these options will negatively affect your credit.
Non-Credit Bills – These are debts you owe that don’t appear on your credit usually (i.e. your auto mechanic, cell phones, tax bills, medical etc.). You might be thinking that you can ignore these bills, but that’s not the case. Not paying these can lead to judgments and judgments have serious consequences on your credit report. Try to work out payment arrangements to keep this from happening.
In difficult times when money is tight, you may need to access your credit to get by. You will need to keep these tips in mind so that you have that option available to you. Even when you are unable to pay your bills as you have when you making more money, these tips will come in handy.
Is there such a thing as good credit card debt? I believe the answer is yes, but you must be able to use the debt to your advantage.
For example, have you ever used zero percent financing to make a purchase?
This is how we did it. Back in November, we purchased a snow blower. It cost approximately $600 and we were offered zero percent financing for 1 year. It was a great offer and well worth it if as long as we paid in full before the free financing period ends.
We did pay it off with $100 installments, so it was all ours before the snow stopped falling. That was a good use of zero percent financing.
Zero percent financing is an expensive mistake if you don’t pay it off on time. But let’s say you still had a balance at the end of the finance period. What would happen?
You would have interest charges going back to the original price on the original date. So, for our purchase of $600 at the regular credit card rate of 18.99%, the minimum payment would be $15.00 per month. If you only paid $15 each month for 12 months, you would have only paid $180 of the $600 balance. If you continued this, it would take you 63 months and cost you $954.27. That’s a lot for a snow blower that’s only worth $600.
This is why it’s so important to know what you can actually afford to pay. We knew we could have the snow blower paid off in 6 months with a series of over payments. Each over payment was like insurance, giving us extra time should something else unexpected come up. Let’s face it, life is great at delivering unexpected surprises.
So, use the zero percentage financing options wisely. They can be a great deal under the right circumstances.
In our last issue, we discussed whether you should blend your finances when you get into a relationship. Money will be your biggest source of friction, and having boundaries doesn’t hurt. I listed some of the different financial relationships couples choose. There are different options besides “What’s mine is mine and never ‘ours’ or “It’s all or nothing or I’m out of here.”
Sometimes your best efforts to create a life together fail, and the relationship ends. Today, we’ll discuss how to unblend your finances. Whether you decided to share all of your accounts, or only share expenses, you should separate your finances as soon as possible, because you can be sure that someone’s name is on the wrong paperwork.
Take a look at your…
“But Jill,” you say, “these all sound like things that happen in a hostile breakup. We’re not like that.” Even if your breakup is friendly, and your ex is as trustworthy and competent as a super hero’s alter ego, you still need to separate your accounts to protect yourself in case something happens to one of you. If one of you dies, or is mentally incapacitated, the law won’t recognize verbal agreements or promises. They only see whose name is on a piece of paper.
Let’s talk about verbal agreements. Let’s say the house and car loan are in your name, but you want to be nice. You don’t need them, and your ex does. Your ex has agreed to make payments, so it’s no big deal, right?
Wrong. Your credit will take a hit with the first missed, or late, payment. And, you may not be able to get a new car or house for yourself because your debt to income ratio is too high. The bank won’t take verbal agreements with your ex into consideration when you apply for your loan.
Here’s something else to think about: Can you maintain your current lifestyle if you live separately?
If you end up with the house or the car, can you afford the payments? Can you pay for the utilities, the maintenance and the insurance? You may have to make tough decisions, because you could be without the things you need to live if you don’t plan ahead.
Too many people have found themselves temporarily homeless, or had their credit ruined, after a breakup. Don’t let this happen to you.
Last Thursday, I talked about balancing debt repayment with building an emergency savings fund. This is the second part of that post.
For the actual pay debt repayment, there are two ways to do this.
If you are the type of person that needs to see forward movement to keep you motivated, then pay off the smallest credit card balance first, then work your way to the next smallest until you’re done. This will give you a feeling of reward and the financial momentum to keep this going.
If paying interest rates and fees bothers you, you will want to pay off the highest interest rate credit card first and then work your way down to the lowest interest rate. You will have the satisfaction of paying less and less in interest charges each month.
Either way excessive credit card debt is the enemy of your budget.
Live within your means.
Because your credit is so important to your finances, you will have to find a way to live within your means. That means only using your credit cards when you know that you can pay them off in full each and every month.
So many people struggle with credit card debt. Just as they get their debt paid off, something happens and they are in debt again. You can use your cards for the consumer protections and to keep a healthy credit score, but learn to use your credit cards the way you would a check or debit card – keep your purchases within your monthly cash flow.
If you haven’t heard, we now have a Consumer Financial Protection Bureau.
You may wonder why? What does it do? How can you use it? Good questions!
This has been needed for a long time. The CFPB describes itself as a neighborhood cop on the beat, supervising banks, credit unions, and other financial companies. Although we have consumer protection laws in place, there was no central policing agency for consumers to turn to when they faced unfair practices, or even illegal actions, from lenders.
There are many David and Goliath stories out there. Too often, when you have a financial problem, you’re the little guy against a big immovable corporation. You may have seen the news story about the foreclosure on a house with no mortgage. How can a bank seize your house if you don’t owe any money on it? A good question. This man literally had no one on his side until he turned to a local news station.
Hopefully, the days of fighting unwinnable battles are over. Thanks to the Dodd-Frank Wall Street Reform and the Consumer Protection Act of 2010, the CFPB is here to help. Hurray!
What does it do?
Its mission is to educate consumers (you), enforce the current Federal consumer financial laws, and study the actions of consumers, financial service providers, and the markets.
Education. If you know what you’re getting, you’ll make better choices. The CFPB believes “An informed consumer is the first line of defense against abusive practices.” You may say, “I don’t want an education, I just want the terms of my loan to be easy to understand.” They’re working on that, too. Most of us didn’t major in finance and we shouldn’t need a financial degree to understand the terms of our mortgage.
Enforce current laws. As mentioned above, we need a powerful advocate on our side. Unfortunately, it’s not enough that the laws are in place. We need someone to enforce them because the banks and credit card companies haven’t been willing to follow rules meant to protect their customers.
Study. The CFPB will study consumers, banks and the markets, so they can learn what the current problems are, how best to address them, and keep us informed on new risks.
How can you use it?
The CFPB actually wants you to use it, and they’ve made it easy with their interactive website. You can voice your opinions, submit complaints and learn more about finances.
Tell your story. They want your stories, good or bad, whether you’re an employee or a consumer. They want to know what people are up against. They want to know what doesn’t work and what does.
Vote on new practices. Right now they are looking for consumer opinions about simplifying mortgage paperwork. This is so needed. Having been in the mortgage field for many years, and having dealt with the numerous disclosures, I know how confusing it can be. The website is asking you to cast your vote for a disclosure with all the costs listed. Take a look and vote.
There is also a section for you to submit a complaint on a problem you have with your credit card company. They will forward your issue, give you confirmation, and keep you updated. So the next time you feel you are not getting your issue resolved, you might want to have the Consumer Financial Protection Bureau assist you.
They’re still a new agency, so we won’t expect miracles anytime soon. The best way to protect yourself is to do your research ahead of time so you can make informed choices. You can do that by following Quick Tips and passing it on to your friends. And don’t forget to bookmark www.consumerfinance.gov, the CFPB website.
Credit card companies are racing to make changes before the new regulations hit in February 2010. They’ve have had a bad couple years. It used to be easy to make money in the credit card business, but things have changed.
The first issue is defaults. Because of unemployment, more people are defaulting on their debts. So, credit card companies have been lowering everyone’s credit limits to help reduce the risk. Their reasoning is sound. The less debt you have, the less debt they will have to cover. Expect your credit card limits to fall even if you have a good payment history.
The second issue is pay offs. More people are paying off their credit card debt because they’re anticipating layoffs. This means that the creditors are earning less from interest payments. They need risk-free revenue, so they’re looking at annual fees. Expect your credit card company to either add an annual fee or increase the fee you already pay.
Right now, under the old regulations, they can still make changes to your account with minimal notice. If you get an unpleasant policy change in the mail, you should definitely call the credit card company and try to get them to revert back to the original terms. If that doesn’t work you can always close the account.