Don't Do Debt.com

Unemployment & debt

Lay-offs, downsizing, cost-cutting. No matter how you say it, unemployment is unemployment and it has a number of consequences on an individual or family. The true consequences of unemployment really hit home with me when a friend described the impact of her husband's job loss on their lives, their little girl, their money.

My friend has a good job and earns about $2000/take home pay every two weeks. Her husband was earning $30/hour plus he frequently accrued overtime hours at time and a half ($45/hr). He recently lost his job. His company looked to cut corners and save money. The company did a round of lay-offs to meet this goal. Right or wrong, fair or unfair, the situation is what it is. Fortunately, this particular company put up no fight when my friend's husband and several other employees applied for unemployment.

He recently began receiving unemployment checks, which is helping their situation. But when my friend sits on my patio, I see in her eyes a stress that is far greater than she is letting on. Her concerns? Most of her first paycheck pays the mortgage. Her second paycheck pays all bills: cable, phone and power bills; the one outstanding loan they have and groceries. Her husband's income, now reduced by more than half, goes mostly to daycare. On this day she is sitting outside my house, she relates that their family has $28 to their name until her next paycheck, a week and a half away. Tonight she is going to her mother in law's to pick up diapers for their 6 month old.

WDAV Interview on debt, etc- download available soon

Today I'm at the INTV studios (www.INTV.com), which also doubles as an encoding lab. I'm so excited because we are currenlty encoding the 11.8.03 WDAV interview and it'll soon be available through the website (www.DontDoDebt.com) and hopefully here on this webBLOG as well.

My excitement stems from the content produced in this interview. Award-winning host Rachel Jeffreys asked questions that reached deep into the heart of the problems of credit cards and debt in society. Now in addition to the content you can find on the Don't Do Debt website and on this webBLOG, you can hear the interview and find out why exactly we are going to great lengths to educate consumers about credit cards, debt and financial literacy.

Thoughts: Credit in bankruptcy

Recent comment asked about getting/using credit in bankruptcy. Here are a few thoughts on credit in bankruptcy:

1. You can always get credit. There are credit card offers for people in bankruptcy. The offers given to people in bankruptcy, however, will come at higher interest rates, smaller balances, stricter and more rigid terms. For example, you might receive a credit card offer that announces a credit line for up to to $3000 but only guarantees a credit line up to $300. I've seen offers that cost as much as $170 to initially activate, so it cost the consumer $170 (a $50 annual fee and a $120 maintenance fee) to open the card and the credit limit is for only $300. This card would be at more than half the balance upon opening it. Check the fine print for all start-up costs before opening the account.

2. Once you file for bankruptcy, creditors know, in most cases, you have more disposable income. You're a good candidate for credit card offers.

3. If you haven't addressed your spending habits, you could end up in debt all over again, even while in bankrutpcy. The goal is to learn how to make good decisions with money so you're not constantly digging yourself out of debt. You want to get ahead with your money. Using credit cards, no matter what state your finances are in, can quickly deplete any extra money.

I'd think twice about entertaining credit card offers in bankruptcy. The last thing you want to do is end up in debt all over again. Take a hard look at your money and how you're spending it and where you want to be with your money in a few short years. The goal is to make your money work for you and a $29/fee to open a credit card could carry far greater costs in the long run. Again, decide for yourself if you to obligate your money so early in the game. With credit cards, that's essentially what you are doing.

Ameridebt: Friend or foe of consumers in crisis?

Recent reports announce that the FTC is suing Ameridebt for fraud: hiding fees and not educating consumers about how to get out of debt. I scoured resources for the full story and here's what I learned: The company bills itself as the friend of consumers in crisis and allegedly falsely calls itself a non-profit organization. Ameridebt charges upfront fees for debt-management plans, even though they do not advertise these initial costs. They collect money from consumers but the consumers' money goes straight to the bottom-line profit of this "not-for-profit" company.

A consumer's money is apparently NOT used to repay creditors. This is NOT GOOD. A consumer can spend thousands with Ameridebt only to find out in spite of that money spent, they are back at square one with their debt and a credit report in worse shape than before.

Keys to credit counseling:

Article: "Quicksand- Debt’s impact on budgeting"

(Highlights from an article slated to appear in an upcoming edition of Budgetstretcher Newsletter)

Ever find yourself quietly pondering where it is exactly
that your money goes? Or, do you find yourself constantly struggling
to save money and get ahead in spite of perfecting your budget
and cutting back on spending? If you’re struggling with money
and credit cards are a part of your spending strategy, it’s time
to look at how your debt-load could be crippling your efforts to
budget and save.

Think of these simple costs to use a credit card:

Balance	Interest	Cost
$2000	10%	$200/year
$5000	10%	$500/year
$10,000	10%	$1,000/year
$20,000	10%	$2,000/year

Other highlights:

Being in debt can cost thousands of dollars a year.
With the cost of being in debt so high, it’s important to understand how credit cards work.
Many people do not comprehend the impact of interest until they’re swimming in it.
When it comes to your money, don’t overlook how your credit cards could be hindering your efforts to budget and save.

Defining predatory

Driving along Selwyn last night, I felt compelled to pull off the road and write. Asking myself why I am working to change the face of predatory lending, thoughts of "predatory" bombarded my mind.

Predatory: My first thought? Engaging or luring someone into an activity when one party knows what the outcome will likely be while the other has neither the foresight or experience to even imagine the outcome.

Choosing a credit card

A friend of mine chooses credit cards like this: An offer comes in the mail. She entertains the offer, turns it over and then reassures herself she can get a lower interest rate. Seriously. She doesn't consider the costs of using the credit card or the impact her current cards have on her financial situation, only whether she can get a lower interest rate. Sadly, she and her husband are on the haphazard strategy of paying bills. They pay when they have money and a convenient time to sit down and "do bills". NOT GOOD. They pay late fees every month on almost every account they currently have - from credit cards to health insurance and other loans- they don't need more accounts.

When it comes to your money and paying bills, organization is a must and timeliness is godliness in terms of protecting your credit and saving money. Late payments erode your credit history and worse, are very expensive, especially when late on multiple accounts. Think of this: A meager $20 late payment on 7 accounts a month. That's $140/month. Pay late on all accounts for a year, they are looking at $1680 in late payments alone. They, however, see the late fee on each account and it seems insignificant. They don't necessarily do the math in the big picture- to their own detriment.

When choosing a credit card, don't simply consider the interest rate. Think about whether you can afford another credit card and the fees, penalties and interest you'll pay for the life of that account.

"But, all I know is debt..."

Credit cards are as much a part of our society as change and the instant gratification that drives it. A friend recently said to me, I appreciate what you're doing, Susan, but everyone lives on credit cards. All I know is debt. How do you address that?

It's true that most people are condititioned to use credit cards. Credit cards are a fundamental part of society and spending money on credit cards drives our economy. Credit cards get us through various times in life: emergencies, housing costs, unexpected expenses, travelling, weddings/engagements, holiday spending, groceries, clothes, etc. You name it, credit cards are there for us. Sadly, at great expense to the average cardholder.

The sad state of affairs is this reality: There are 1.2 BILLION bank & retail credit cards in circulation in N. America. VERY FEW cardholders know how to correctly use a credit card. Granted, there is a very small percentage of people who refuse to use credit cards, but of the rest who do, only a small percentage are financially savvy enough to use credit cards and avoid complications of debt. By complications I mean this:

Highlights from a credit card conversation

Conversation over coffee led to interesting discussion about money & credit cards. Highlights included:

Credit card debt: Insult to injury kind of debt because interest rates and fees are applied to the balance you pay interest on. You pay interest on interest, fees, etc. Consider how expensive the privelege to be in debt is when multiple cards are involved.

We pondered his money situation and what his money would be like if he'd simply avoided credit cards in the beginning. His money, like others, has common peaks and valleys. When he has money, he pays off the debt he's run up and he's broke again. When he's low on money, he runs up credit cards. See the cycle here. What if he didn't have to repay credit cards everytime his money peaked?

Coming Soon...

The past few days have been very hectic around here. A new and much improved website (www.DontDoDebt.com) is almost complete and ready to go live (look for it on Fri., 11/7/03). Upon completion, I will have plenty to blog about.

UP NEXT:
Debt and the rising costs of education
Everyday people. Everyday Debt.
Is it true? Do we typically need 25% more than current income to live comfortably?
More on common debt misconceptions.

Got issues or questions you need addressed? Post 'em in the comments section. Thousands of people have similar questions as you and it's good to get them on the table and start talkin' about them.

Stayed tuned. Will be back live again on Friday night (11/7/03)!