wealthJUMP.com

It is very important to have a budget for your income. I used to be of the mind that people that had a lot of money would have an accountant spend their money and pay their bills. And they simply, got an allowance of the money that they can spend. I always thought it was impossible to save money without having a very large surplus to stick in a savings account.

What I didn’t figure out until recently is that people need to establish a budget, and a savings plan long before they can afford a slimy accountant to handle their money. You should be budgeting to save money. Now I know the question in your mind is: how in the world can I save money if I’m barely squeezing out my electricity bill every month?

You’re not alone. Research says that no one is saving any money. In fact, research says that people are saving less now than they ever have. Research also says that people have 10% of their income that goes towards nothing tangible. Chances are you have 10% of your income that could be going straight to savings.

So let’s put this into perspective

If you drink a $3 coffee every weekday morning in year, you’ve spent over $780 on that coffee every year. If you reduce your coffee intake to 3 times a week, you’d save $312 a year. Take that Starbucks!

If you buy lunch at McDonalds every weekday, assuming you spend about $5 every day, you’re spending $1300 a year on your lunch. How about packing your lunch?

Let’s say you are a DVDaholic and buy a DVD a week. You spend about $1000 a year on DVDs averaging $19. How many of those movies do you rewatch everyday? Could you limit it to 2 DVDs month? And save $500?

Keep track of everything you spend in a month, find your 10% and put it in a savings account. Are you spending more than 10% of your money on fast food, coffee, and DVDs? If you put it in an interest bearing savings account, that money will work for you, instead of you working for it.

Have you noticed the signs at some gas stations warning you of credit card limit fees? I assumed that they were set by the merchant. Merchants sign up with banks who have relationships with the various major credit card companies just to be able to run your credit card. They are charged an interest rate on what you purchase and then usually a merchant has to pay a monthly maintenance fee. These accounts are costly to a small business owner, but a gas station can afford it.

The AP is running a piece about how credit card companies prevent you from spending your credit card on “excessive” amounts of fuel.

You can check out the AP piece on Yahoo

But only up to a certain amount.

For MasterCard customers, it’s $75. Visa and Discover users have a $50 pay-at-the-pump limit. Transaction limits vary for corporate card holders and American Express users.

Not all gas stations have to abide by the cap. And there are no limits if a customer goes inside and pays with their credit card at the counter.

The caps went unnoticed when gasoline prices were low.

So if you drive a big SUV or truck and use a credit card to make your purchases - you are out of luck. The AP article mentions that people are using 2 different cards in order to make a purchase. I disagree with that suggestion. I do like the idea of paying for a single budget item with a credit card and paying it off within the same month. If you do that you don’t pay interest on the payments and you build a relationship with the card company. That can help increase your spending limits, lower your interest rate, or increase your credit profile. With that said, do not use 2 credit cards. The more cards that you are using for that fuel budget, the more you’re going to be at risk of forgetting to make a payment, not be able to pay it off immediately, etc.

If you can’t fill up with your credit card, try other gas stations and stick with the ones who don’t have the cap on them. I’ve seen posted signs, so if you don’t know, ask an gas station employee. If you are desperate for gas, use your ATM bank card and subtract it from your overall fuel line in your budget. That way you aren’t risking interest or messing up your budget.

If you are driving an expensive, Earth killing vehicle and you don’t need it - consider buying a used commuter car to drive around. Buy it outright with your savings and everyone wins. You, the Earth, and your bank account.

Willamette Week online is running an article about a debt collection agency that went after the wrong guy for $102.

The 51-year-old father of five got his first phone message from DRS at the beginning of 2005. The 22-second message said in part: “Hi, this is Nancy Miller. I’ve tried to reach you for a while, but I keep on missing you. Do me a favor. Give me a call at 1-800-807-4106.”

They pick Debt Recovery Solutions LLC as their “Rogue of the Week” - check out the article here on Wweek.com.

The long and short of it is that the victim in question didn’t owe the debt and because it is in violation of the FDCPA for a collector to collect on debt they can’t validate, they are getting sued. And the victim will end up winning if he’s got the proof to back up his claims. They left approximately 200 messages left on his answering machine. Each each communication/attempt of collection is a violation, which could carry up to a maximum of $1000 per incident. Sure seems like a lot of money to get Sprint their $102 that he didn’t owe. I’ll keep an eye on this one and see what transpires.
Be sure to validate your debt before paying someone - just how many people in the world have your name?

As mentioned in a previous article (‘Your credit score and you’) debt to income ratio makes up 30 percent of your total credit score. The score is made up from your credit use. Debt to income can also affect the amount of what lenders would allow for your mortgage/household needs. The exact amount depends on the lender but a good way to look at it is to base the high end of your mortgage and other household needs (utility bills included) and fit it into 36% of your income. Something else that seems to be calculated into this bracket is how much of your available credit you are using.

If you are looking to raise your credit score quickly, you should pay down all of your credit accounts to 29% of use. At this point, the lender is no longer even looking at that account. It might as well be closed completely. From my experience, paying down this debt lowered the interest rate of my loan significantly and it only took about $1000 to pay down multiple credit cards to below 29%.

If you are just trying to get out of debt, you should pick your highest interest rate credit card and pay that off. Then take your minimum payment from that highest card and pay down your 2nd highest card with that money. Then continue to get rid of each of your card’s minimum payments and shuffle that into the next card. This is called “snowballing” your credit card debt. You also have the option of using an alternate option and pick your lowest balance card and working backwards. It’s up to you. If all your accounts have about the same interest rate, then you will probably feel more empowered by paying off the low card.

bankrate.com covers this in Credit Cards: Which debt to pay off first:

“The amount you owe doesn’t really matter when you’re paying an enormous amount of interest,” Sherry said. “Try to pay the highest interest rate ones first. Muster all the funds available and get the debt out of your life.”

They go on to say:

What about knocking off some low-balance bills first and eliminating a bill or two from that thick monthly pile? Experts respond: Go ahead, especially if it will give you the boost you need to stick with a pay-down plan.

Like they say in that article, none of it’s going to matter if you don’t stick to the plan. We’ll cover some budgeting thoughts in upcoming posts.

Collection agencies tend to be assigned accounts after the 90 day deliquent mark. You may have received phone calls or letters from these collection agencies bombarding you with dollar figures that you owe them. Generally we take them in by their word that they are collecting X amount of money for Company Y. But if I walked up to you on the street and said “Hey, I’m representing Company Y and you owe them $200. Please pay up.” Would you start writing a check? Of course not.

In the United States, we are protected by a law called the “Fair Debt Collection Practices Act.” (FDCPA)

The FDCPA defines the creditor as:

The term “creditor” means any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.

That defined piece very specifically excludes collection agencies.

A debt collector is:

6) The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. Notwithstanding the exclusion provided by clause (F) of the last sentence of this paragraph, the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. For the purpose of section 808(6), such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests. The term does not include —

(A) any officer or employee of a creditor while, in the name of the creditor, collecting debts for such creditor;

(B) any person while acting as a debt collector for another person, both of whom are related by common ownership or affiliated by corporate control, if the person acting as a debt collector does so only for persons to whom it is so related or affiliated and if the principal business of such person is not the collection of debts;

(C) any officer or employee of the United States or any State to the extent that collecting or attempting to collect any debt is in the performance of his official duties;

(D) any person while serving or attempting to serve legal process on any other person in connection with the judicial enforcement of any debt;

(E) any nonprofit organization which, at the request of consumers, performs bona fide consumer credit counseling and assists consumers in the liquidation of their debts by receiving payments from such consumers and distributing such amounts to creditors; and

(F) any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity (i) is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement; (ii) concerns a debt which was originated by such person; (iii) concerns a debt which was not in default at the time it was obtained by such person; or (iv) concerns a debt obtained by such person as a secured party in a commercial credit transaction involving the creditor.

So these are the people that are responsible for collecting your debt. Notice how they aren’t the same thing? That means that you need to make sure that the debt collection agency actually represents the creditor. And they are responsible for proving it.

Based on the FDCPA, a collection agency has to provide you the amount of debt, the name of the creditor, a statement that says that if you don’t dispute the notice within 30 days then it will be assumed valid, a statement that says that if you notify them that the debt is dispute that they will obtain verification of the debt and mail it to you. And finally that they will send you within 30 days the name and address of the original creditor if different than the current creditor. These statements must be made within 5 days of initial communication with you, if it’s not included on the original notice. That’s why generally you will get a letter from a collection agency before they start calling you.

What does this mean to you?

If you receive a phone call from a collection agency before receiving anything in the mail, ask them for their name, agency name, address, and who they are collecting for. Tell them you request all further notification be sent by mail. If you haven’t received, the information above within 5 days, then you should send them a letter stating that they are in violation of the FDCPA and any further attempt at collecting the debt will be met with legal action. Pursuant to the FDCPA, any collection agency that is in violation of the Act can result with a fine of up to $1000.

If you get the statements within 5 days, then you should always follow up immediately by mail with a letter stating that you are disputing the information in the letter and request:

1) Proof that the collection agency owns the debt or has been assigned the debt. They have to show that they can collect money from you.

2) The complete payment history, starting with the creditor. There is a requirement established in Fields v Wilber Law Firm (see the full court opinion at FindLaw

3) Copy of the original signed agreement or application.

The FTC has written an opinion stating that an agency cannot report a debt to the credit bureaus that have not been validated. See here

If they do not provide you with that information, they are in violation of the FDCPA and are subject to a civil lawsuit.

There is much much more that the FDCPA and the FCRA (Fair Credit Reporting Act) that we will be bringing to you in the future.

So I’ve mentioned a couple of times that there are multiple ways that you can monitor your credit report. Your credit report is different than your credit score. Your credit score is an estimated risk to a lender. So if you are looking to buy a car and the dealer runs your credit report they are actually looking at their risk. Their only interest in your credit report comes to your FICO score. Any single time that you’ve tried to get credit, whether getting a job, renting an apartment, or getting your utilities ran - this number is what’s looked at.

Your credit score can be between 300 and 850. The national average of credit scores is 676. If you have any types of problems on your credit, you can probably estimate that you are around 600. If you file bankruptcy, you can expect a credit score of around 475-500. If you have a lot of credit problems and are in danger of bankruptcy or foreclosure, expect lower than that.

What raises your credit score?

1) Paying bills on time, every time. Make sure you have pulled your own credit report so that you know which of your accounts report to credit agencies monthly. Those are the ones to pay special attention to on the date that you are paying a bill, because they report positive payments. Most other bills (such as utilities, rent, or other services) only report your bad experiences. This makes up 35 percent of your total score.

2) Your debt to income ratio. This is how much money you owe vs what you bring in every month. If you have a ton of credit, they guess that you use your credit and makes you more of a risk than someone who has one credit card and has never used it is a better risk. Of course, if you don’t have a record of good credit it keeps adding up. So what you should do is get credit and keep your account balances low. This is makes up 30 percent of your total score.

3) Balance of types of credit - if you have a multiple types of loans like revolve credit (credit cards) and installment credit. (mortgages and car loans) This makes up 10 percent of your total score.

4) Credit inquiries - This is a check on how much credit you are trying to get. If you don’t have any other problems with your credit, this will have little effect on your score. If you have any other negative problems (late payments, bills sent to collections, etc) you need to be careful on how much credit shopping you’re doing.

So after all of that, are you curious what your credit score could be? Check out the Bankrate/FICO calculator.

So you’re taking a look at your annual credit report (You are getting it right ever year right? Tsk Tsk, Get your free annual credit report) and you see an old debt that you didn’t pay off a few years back. It’s relatively low cost and looks like an easy thing to correct. Before you reach for your check book - think again.

Liz Weston talks about a scenario where someone decides to pay off an old debt, and her score actually went down by 95 points. Liz also mentions things to look out for when messing around with payment plans and old debts.

“Thanks to the sometimes bizarre quirks of credit scoring, state statutes of limitations and the federal Fair Credit Reporting Act, consumers can’t always assume that paying off old debts will improve their financial situation or make them a better risk in lenders’ eyes. Add in the tactics of some unethical collection agencies, and you have a real quagmire.” - See MSN Money’s article When Paying Bills Can Hurt Your Credit Score

What was strange to me while researching this is that there is a nicely worded post on Yahoo Answers by contributor “echo” which goes very quickly to the point. Don’t pay a collector unless you have verified that they can even collect or charge you any money:

“If it is with a collection agency, send a debt validation letter first. Make sure that they have not illegally inflated the amount, that they are licensed and/or bonded to collect in your state if your state demands it, that they even have the legal right to collect on that debt (it’s not unheard of for a collection agency to try and collect a debt they have no legal right to collect on)” - See this Yahoo Answers post Will paying off old debt improve my credit score?

From personal experience, paying off old debt did not help me at all. In fact, I experienced a lost of 1-2 points. But it could’ve been more as I was paying down debt as well, so it may have impacted a lot more than that. In the end, I would not go back and pay the 4 yr old debt even though it was only $49. If that debt had been $490 instead, I’d be more upset over a loss in credit score points.

What I recommend doing is not risking it, pay off all of your current debt. Your credit cards, your auto loan, your mortgage, then and only then, look at your credit report and get rid of the old debt. Of course, at that point, your credit score doesn’t really even matter that much because you have no debt, and no mortgage, rent, car payment, credit card payments and can just go out and buy things out right instead of relying on your credit.

There are many reasons why you’d want to check your credit score. The first is obviously to make sure someone else isn’t using your credit. Identity theft is prevalent in the wired world - you want to make sure you aren’t a victim so that you can use your credit without someone elses charges on top of your own. Also, you need to know more about your finances than a mortgage broker or an auto dealership’s financial department while you’re shopping for that new car.

Anytime you are denied credit you are sent a letter in the mail stating the reasons why you are denied and then saying very specifically in the letter that you are entitled to a free credit report by that agency. So the moral of this story is that you should read your mail past the “We’re sorry to inform you that….” You are entitled under US law to a free report within 60 days of a company taking adverse action against you, like being denied credit, insurance or employment. Also, you are entitled to one report a year if you’re unemployed and looking for a job or if you’re on welfare.

Annually you are allowed on free credit report using the FTC service at annualcreditreport.com. If you don’t have internet access (we’ll leave it to you, fair audience, to figure out how those folks are reading this site) - you can fill out the Annual Credit Report Request form and mail it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

You can also buy additional copies of your report at the 3 major credit bureaus:

Equifax - Ph: 800-685-1111 or on the web at Equifax.com

Experian - Ph: 888-397-3742 or web at Experian.com

Trans Union - Ph: 800-916-8800 or their website at Transunion.com

If you’re in Colorado, Georgia, Maine, Maryland, Massachusetts, New Jersy and Vermont, you already have free access to your credit report.

You may be wondering whether you need all 3, the answer is absolutely. Not every debtor reports to all 3 bureaus. From my point of view, Transunion is rarely used for calculation or reporting. Experian is ranked second and Equifax is the most popular.

So in short, you need to check your credit score at least annually. Be informed and protect yourself from identity theft.

Bloomberg is reporting that consumer borrowing has increased in March as Americans spend more of their hard earned money taking out car loans and charging to the credit. Falling real estate values and high gasoline rates are to blame, says Bloomberg at U.S. Consumer Credit Increased $13.5 Bln in March

It’s not that bad to use credit cards to make purchases as long as you pay off the credit within your billing period. Every credit card will usually have a date when the finance charges are calculated, the secret not paying interest on your purchases is to figure out that date and pay off whatever you’ve charged. It’s really not rocket science to do it, you can read your billing statement or give your credit card company a call and ask them when their finance charges are calculated. So you can spend money on gas on a credit card and make a single payment for your gas budget every month. Some credit advisors actually say paying off the balance every month on your credit card increases your credit score. I know from my own experience with this that you definitely build a good relationship with that particular credit card company where you get credit limit increases and access to special cards that have extra rewards.

Be sure to pay the balances off before that date, or you pay the finance charge. If you pay the finance charge it defeats the purpose of the single transaction and actually costs you more money for gas.

If you are having a hard time making your mortgage payment:

1) Get on a budget plan immediately to try to save your house.

2) Contact your lender and explain the situation.

3) Look around for excess that you can sell on sites like Craigslist or ebay

4) Consider speaking with a real estate agent to put your house on the market. Selling it and downgrading to a house or rental that you can afford is a lot better than foreclosing and ruining your chances of making major purchases for a long while.

Continue coming back to this site (wealthjump.com) for more information on how you can build your credit and get control of your budget.

Well not technically, she gets to tweak her marketing of her “Fico kit” to improve credit scores. Have this be your warning that there are people out there saying they can do things with your credit that they cannot do.

“Under a proposed settlement of a class action lawsuit against the Fair Isaac Corporation and Equifax, which sell products to consumers who want to gauge how fondly lenders will view them, there are new limits on the assertions these products can make about their ability to raise people’s credit profiles.

Ms. Orman sells “Suze Orman’s Fico Kit” on both her Web site and one run by Fair Isaac. Although she was not a defendant in the lawsuit, her kit was among 156 products that came under fire as potentially violating the Credit Repair Organizations Act, a law designed to control fly-by-night credit-repair agencies.” - In the NY Times

Noone can instantly repair your credit. Not even the hosts of QVC and MSNBC shows or best selling authors. There are steps that you can take to improve your score and maintain it, but sometimes you are just stuck waiting for time to elapse.

For more information on this lawsuit settlement visit the settlement website by clicking here.