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10 Myths about Credit Debt
10 Credit Myths Scott Bilker is the author of the best-selling book "Credit Card and Debt Management." He is also the Editor and publisher of the FREE DebtSmart® E-mail Newsletter (http://www.debtsmart.com). Sign up today! As they say, "Knowledge is power." Many times people either act on false information or fail to act because they didn't know what could be done to their benefit. This is the case in many areas of life, but on the top of that list is money. And in the money category you will find lots of misinformation about credit. There is so much to talk about on the topic of credit myths that an entire book could be dedicated to it. Myth #1: I'm a complete financial loser for getting myself into this mess. Fact: It may be true that you're responsible for getting into debt but that doesn't make you a loser. In fact, it may not be your fault at all. As long as you start working on becoming more knowledgeable when it comes to finances, you will ultimately find success in controlling your debt. Myth #2: Credit is what got me into this mess. Fact: Spending is what got you into debt. Credit was the means to spend. If you're problem is spending then very well may have spent all your cash. However, credit cards may make it easier to spend. Myth #3: There's nothing I can do about it now. My credit is destroyed forever! Fact: As long as you work, starting today, to rebuild your credit, you'll eventually get it under control. Rebuilding your credit means: (1) Paying on time; (2) Looking for better credit options; and (3) Learning more about money and credit. Myth #4: If I cosign a loan for my friend, it has no affect on my credit. Fact: When you cosign a loan it's like you took the loan on your own! It may be true that your friend is the first one responsible for the loan, however, if they default it's completely your problem. Myth #5: It's fine to give out my credit card number for identification as long as I don't authorize a charge. Fact: NEVER give out your information as a form of identification. When it comes to giving out any personal information, be sure you know exactly with whom you're speaking. This is especially true when someone on the phone. Myth #6: If I pay off an old debt it will be removed from my account. Fact: Most likely, no. In fact, when you pay past-due debts it restarts the time period that it can be reported in your credit history! Myth #7: When I get divorced my "X" will owe half the debts. Fact: If your name is on the account then you owe the money! If you have a joint account and your ex-spouse refuses to pay, even if you've agreed they would, then you're next on the collection list. Myth #8: The government owns the credit bureaus. Fact: Credit-reporting-agencies are not owned by the government. Although, there are many laws that dictate how they must operate. Myth #9: I cannot change the information on my credit report. It's set in stone. Fact: You can change the information! The Fair Credit Reporting Act outlines that information that's not 100% accurate or cannot be verified with 30 days, must be removed. Myth #10: If I get in debt too deep I'll just file for bankruptcy protection. Fact: The bankruptcy laws are changing to make it more difficult to eliminate all your debt in a bankruptcy so you may end up paying much of it back anyway. It will also be on your credit report for 10 years! Hey, if you have NO OTHER OPTIONS then you should certainly investigate bankruptcy. However, it's much better to settle the debts if you can. For free information about how we can help you reduce your debt, please fill out our form.
Credit Card Arbitration Fine Print
Giving Up Your Rights--Without Knowing It! Scott Bilker is the author of the best-selling book "Credit Card and Debt Management." He is also the Editor and publisher of the FREE DebtSmart® E-mail Newsletter (http://www.debtsmart.com). Sign up today! If you have a Capital One credit card, then I highly recommend you read this entire article! I just received a letter from Capital One informing me that "enclosed is an important legal notice regarding arbitration" and I need to "read the entire notice to fully understand its implications" to my account. This isn't the easiest reading by the way. It's a legal notice, written in legal language at the college graduate level. Quite different than the 6th-grade level credit offers they send me trying to get me to use my credit lines. Here's an example from the arbitration letter: "The arbitration of any Claim must proceed on an individual basis, even if the Claim has been asserted in a court as a class action, private attorney general action or other representative of collective action." Oh yeah, makes perfect sense to me. Here's an example of the writing that's meant for me to easily understand (from a credit offer): "One of the attached Purchase Checks is already made payable to you. Consider using the other check to purchase something you've always wanted. It's that easy!" Gee, I can understand that no problem. Why the difference in writing style? Could it be that in one case it's meant for me to be confused and in the other they want me to spend money on my credit lines? Could it be that both cases are written to work in Capital One's advantage? We both know the answers to those questions. Here's the bottom line on this arbitration letter: if you do not reject the Arbitration Provision then it becomes part of your account. It's a "negative offer" similar to the music clubs that automatically send you the "CD of the Month" unless you tell them not to send it. So what's the Arbitration Provision? It means that if you have a dispute that's listed in what they consider to be a dispute, the matter is taken to an impartial person, or group, to be resolved. Of course, you can choose your arbitrator--from their list. It means that if you allow this provision to become part of your agreement you will not have the right to take your claim to court or participate in a class action lawsuit. And it may cost MORE to go to arbitration, probably because your attorney's fee could be covered for many claims, like say a class action lawsuit. You may ask why it's important retain these rights? First of all, I don't want to give up any rights unnecessarily, but more importantly is that although we are only going to recover pennies in a class action lawsuit, it's still in our best interest to be a part of these cases. Sure, the lawyers get all the money, but these lawsuits are one of the best defenses to keep the banks in check. It reminds them that they need to obey the law or they'll pay! Here is a list of some of what they'll consider a "claim" (dispute you have with them or they have with you): Transactions or attempted transactions on your account.
I would urge you to STOP the Arbitration Provision from becoming part of your credit card agreement! I don't see it as being in our favor at all! If you have a Capital One account and accidentally threw out that letter, listen to the recording at 1-888-578-5462 to learn how to reject the provision. Here's the general rule: When businesses spend money to send you an offer it's usually in their best interest and probably not yours. There are exceptions; however; I always approach all offers with a level of skepticism. I have received term changes from other credit card banks which, if rejected, mean that the account is closed. The only consequence of rejecting the Arbitration Provision, which I saw in the letter, is that it doesn't become part of your account terms. Let's look at this from Capital One's point of view. They're lending money to many people who are going to stiff them in bankruptcy court. I can understand why they need to protect themselves, however, they must treat us "DebtSmart" customers with respect. We are their best clients, and we need to stick together to show all the banks who's really in control--who's paying their salaries! Don't give up any of your rights! To reject the Arbitration Provision you must follow the detailed directions for completing the "Arbitration Rejection Coupon" that accompanies the notification letter. Although I feel like they are trying to pull a fast one here I still like Capital One and recommend their credit card because the interest rates are generally lower than other credit cards. In their defense, on this Arbitration Policy change issue at least they indicated all the salient information in bold print on the envelope and in the letter. By the way, the deadline for reject the Arbitration Provision is 1/31/02 For free information about how we can help you reduce your debt, please fill out our form.
Credit Card Identity Theft
Identity Theft--A Personal Story Robert B. Gamble is an Electrical Engineer currently working for the U.S. Navy at The Naval Air Warfare Center in Lakehurst. Robert also is one of the editors of Scott Bilker's best-selling book, "Credit Card and Debt Management." This article is brought to you by the FREE DebtSmart® E-mail Newsletter (http://www.debtsmart.com). Sign up today! Several weeks ago I received a bill from Target Credit. I knew I did not apply for such a card, so I called the number related to the $160 worth of items charged and listed on the bill. They told me the items were shipped to someone in New York. Well, I was not about to pay for something I did not order, or receive, and I was not about to pay for a credit card that I did not even apply for. I called Target, and came to find out that someone had signed up for the card, they had my name, my social security number, and my address, however the address had the wrong street number. Needless to write, I told them to cancel the card and I filed a fraud report. Three months later, I am still receiving evidence that the thieves are still trying to use the card. Target assures me that they have canceled the card, and are not accepting any more charges. They assure me that their fraud department is handling it. Thank you (Scott) for my Capital One card. Last week, I received a call from Capital One to verify if I truly wanted another Capital One Card. They noticed that the new application was to some address in West Virginia, and they wanted to confirm that I wanted the new card. They provided Capital One my name, and my SSN and the new address. I told them no, and they told me I should contact the three different credit report companies and put a statement in that would require the credit report companies to contact me when any new credit cards are applied for. Kathy (the Capital One person) gave me the phone numbers for the three credit report companies and suggested I call them ASAP. As soon as I hung up, I called them. The three companies are: Address: or, Could not speak to anyone or, for online help Fax machine number
I have not contacted the number from the credit report that I received last month (Just by chance I ordered a Free report which came from EquiFax). While the credit report does not show the Target card, or any other card I don't know about, I still want to call and file the fraud report to require contacting me before issuing any new cards. I hope this helps you and your readers, and again thanks for the Capital One card. For free information about how we can help you reduce your debt, please fill out our form.
How many cards are too many?
Scott, you have too many credit cards! Scott Bilker is the author of the best-selling book "Credit Card and Debt Management." He is also the Editor and publisher of the FREE DebtSmart® E-mail Newsletter (http://www.debtsmart.com). Sign up today! Scott, For instance, I did need to carry a balance for 3 months to pay for an engagement ring at the beginning of this year. All I did was charge it to my everyday card, which has a lousy rate but gives me perks, get a new card with a low rate so I paid almost no interest for those three months, then closed that card when it was paid. This is actually better than calling the banks for the best rate because the cards with the perks almost always have the lousy rates, so you're better off putting it onto one of those cards, and then transferring it to a lower rate card, then you get the perks. The problem with having multiple cards that go unused is that potential creditors will count available credit against you when you apply for a mortgage or a car. Also, the more open accounts you have, the greater the chance of being defrauded. Having only one card is by no means restrictive there are hundreds of companies who would give me a card after a 5-minute phone call. I just don't see the point in keeping cards that aren't being used open. --Keith Answer WARNING, I am NOT advising anyone to go and get 80 credit cards! The more credit lines you have available, the greater the probability you'll increase your debt, obviously. So why do I have so many cards? There are many reasons: 1) When I borrow money I want to have many loan options. About half of my accounts are offering me low-rate transfer deals all the time! I have purchased used cars with my credit cards at 0%! And because I have so many cards I can continue to transfer the balances and keep the rates less than 4% all the time. I've been doing that for more than 10 years! I don't carry a balance on all of those credit cards. If I did, then this article would be about bankruptcy not being "debt smart." If you think 80 credit cards are a lot then how many do you think the worlds record is? According to the Guinness Book of World Records Walter Cavanagh of Santa Clara, CA is "Mr. Plastic Fantastic" and blows me away with a total of 1,397 unique accounts! I couldn't even image juggling that many credit cards. Next, your strategy for using a card that gives you perks, at 0% for purchases, is good. You used the perk card then transferred the balance to a low rate card. When you were done you closed all the accounts. That's great! I personally don't close the accounts as long as the banks aren't charging me an annual fee. I keep them open because they ALWAYS give me a great offer within a couple months after my balance goes to zero. I don't want to keep applying for new accounts and closing accounts. It is true that you're going to have a difficult time getting a mortgage if you have many open credit lines--even if the balances are zero. That's because the bank doesn't want you to have the potential to get into credit card trouble since it could affect their mortgage profits. How many cards are too many? When you apply for a mortgage the bank may ask you to close some credit card accounts before they grant you a mortgage. When I purchased my home I had 24 credit card accounts and I got the mortgage with no problem and no questions asked. Each bank has it's own lending policies. As far as having a greater chance of becoming a victim of fraud, I doubt the number of cards is going to make you a greater target. In the last email newsletter my friend, Robert Gamble, told his story of identity theft where someone was trying to get new credit lines in his name. Actually, when you think about it, someone would have a difficult time getting new credit in my name. If they tried they'd probably get rejected because I have so many accounts right now. If I only had 2 accounts open then it would be much easier for someone to defraud me with identity theft. Ironic isn't it? And since I don't carry all those credit cards with me, I only carry 2 in my wallet, I don't have to worry about losing the actual cards. Also, I keep a list of all the items in my wallet just in case I do ever lose it. Plus I have every account and every phone number in a database so I can contact each bank if there ever was a problem. You said that you don't see the point to having that many credit cards. The point is a personal point, Scott's choice, for Scott's reasons. It works for me and may not work for everyone. I attribute getting out of debt to having all those credit cards. I learned how to beat the system by being immersed in it and developing good "Credit Card and Debt Management." For free information about how we can help you reduce your debt, please fill out our form.
Managing Credit Card Debt
Manipulating the System Scott Bilker is the author of the best-selling book "Credit Card and Debt Management." He is also the Editor and publisher of the FREE DebtSmart® E-mail Newsletter (http://www.debtsmart.com). Sign up today! It's Friday night and the phone rings... you know the call, it's late, the last bite of my dinner being chewed, all you want to do is watch TV and relax. Guess who's calling? Yes, it's a mortgage company that's trying to sell me a refinance deal! The girl asks me about my mortgage, my rates, and my credit card debts. To which I do reply, after all I'm always curious about getting a better loan (plus I love toying with these people). I ask her what their best rates are. She tells me that it depends on my credit history. I said, "Okay, say I have a credit rating like Bill Gates. NOW what's your best rate?" She said that she can't quote a rate however, the loan officer would let me know. So I agreed to have the loan officer give me a call. On Monday, while I'm trying to set up the new DVD player, the phone rings. Guess who? It's the loan officer, let's just call him Kevin. Well okay, so Kevin is really his name. I'm not going to change names to protect the innocent. :) Kevin starts his spiel about how he can save me money on my $110,000 30-year, 6 7/8% mortgage and $15,000 of credit card debt. I asked him what his best rates are and he told me it varied depending on my credit score, which he could check if I tell him my social security number--I don't think so! There's no way I'm giving that out over the phone. If his deal sounds real then I'll ask for paperwork to be sent through the mail. I told him to assume that "My credit history is the best of anyone on earth and in this universe. Now, what is your best rate?" He told me 6.5% with 1 point. He went on to explain that unlike other mortgage companies that ask for the 1 point at closing, they "conveniently" include that amount in the mortgage principal. I told him that 6.5% isn't that much better than my 6 7/8% (6.875%) and when you throw in the 1 point then your "best" loan is really around 6.6%. That's when he asked me what my credit card rates are. I told him that my credit card debts are at about 1.99% APR, which are a little high since I had the entire $15,000 at 0% for the prior 20 months. Kevin said that I'm really not getting 1.99% and that there's no way I ever got 0%. He said, "Tell me where I can get those credit card rates?" I told him to look in his mailbox. That's where many great credit card deals are found. And most really good ones are offered from your current banks. He still didn't believe me and said that if I look at my statement I'd see that I was really paying 16% or more. I explained that when I had those 0% deals, my credit card statement would arrive and show a balance of $15,000 and under "finance charges" the total is "$0.00." His response was, "Think about it, Scott...why would a bank give you 0%. They're not making any money!" I said, "To get new customers." Kevin then told me that it doesn't make sense that they would do that. I said, "Well then, does it make sense that Publisher's Clearing House gives away $10 million, or that McDonalds gives away millions in prizes? Why do they do it? To get business." Why do the banks offer 0%? Because they think that I'm going to forget that the offer ended and let my rate bounce to 15% (or more). I'm not! I'm simply going to transfer my balance to another low-rate offer when their offer ends. Overall, the bank will make money because most people (not DebtSmart readers--we're all too "debt smart") are not going to not notice that the rates have been increased or will be too lazy to continue transferring balances. After I told Kevin how I keep transferring my balances he said pretentiously, "So you're manipulating the system." I said, "I'm taking advantage of my best loan options. You just called me and are trying to get me to transfer my mortgage and credit card debt to your bank. If I decide to use your offer, am I then 'manipulating the system'?" That comment really caused Kevin's brain to freeze up. Almost as locked-up as Windows 98 with 20 open applications. He was forced to shut down and restart. He finally replied with, "Well no." "So then, if I use other bank's offers I'm 'manipulating the system' but if I use your offer then I'm not. Is that right?" Kevin said, "Well I guess you're just being smart." You see my friends, there is a stigma about transferring balances. People say that you're "credit surfing," that you're "manipulating the system" or "using Peter to pay Paul" (I don't owe Paul anything) or "paying one credit card with another." Hear me on this...DON'T listen to these myths. Don't be brainwashed by this dogma! It's always DebtSmart to use your best loan options! It's doesn't matter how many times you switch cards. You're always going to save money when you pick a better loan deal. Kevin changed the subject by trying to give me numbers for his refinancing deal. He said that my payments, with his 6.5%, 30-year, mortgage for my $110,000 would be about $750.00 per month. Of course I always have my calculator handy and I told him that the payments are more like $695.28, in fact, they are exactly $695.28. He said that he's including his 1 point fee in the payment. Well then, according to my numbers the payment is $702.23. I asked him how he's coming up with $750. Kevin said, "It's obvious that you have a calculator there." My response was "Yeah, I have a calculator here. What do you have there? Whatever you have doesn't seem to be able to come up with the correct payment." Finally, since he can't talk about facts anymore he starts to get emotional and says, "Look, I've been doing this for years. I do this all day. What do you do over there at Press One?" "I write and publish books, I run a web site, write an email newsletter." However, I never did mention to Kevin the subject matter. Lastly, I should say that Kevin was nice and I do want to thank him for calling because it resulted in this informative article. For free information about how we can help you reduce your debt, please fill out our form.
Personal Finance Management
For free information about our debt consolidation program, please fill out the form on the right.9 Steps to Get Organized for Financial Success! Scott Bilker is the author of the best-selling book "Credit Card and Debt Management." He is also the Editor and publisher of the FREE DebtSmart® E-mail Newsletter (http://www.debtsmart.com). Sign up today! The beginning of my financial life was when I received my driver's license. Before that I rode my bicycle around and had no bills. Well, I needed a car, right? I had to get to work so I could pay for the car, to get to work. That's what started the bill cycle. The car was used (preowned) but it was the gas credit card that was getting charged. Let's not forget that I could now go to the mall, buy stuff, and take Larissa on better dates than McDonalds (we started dating before I could drive). So it didn't take long for the bills to start arriving in the mail. I just didn't know what to do with this mail. Nobody ever showed me a system for managing bills because I didn't have any to keep organized. So what did I do back then? Probably what many people do today. Bring in the mail, stack it on a desk, and tend to the pile at the last minute. Hopefully I didn't miss too much because I frequently found mail on the floor behind the desk. It didn't take long for me to realize that I had to do something. I had to get organized! That was a lifetime ago, really, I was 18 then, now I'm 35 and insanely organized about handling money, bills, and all finances. I've learned over the years that the better organized you are with all your transactions the less likely you are to: Bounce checks.
1) Filing system. The hanging files are the best. They're just easier to work with, easier to access. A basic filing cabinet costs around $30 and is well worth the price. Once you have a filing cabinet, and some hanging files, create a file for each bill and bank account, for example, mortgage/rent, electric, cable TV, water/sewer, health clubs, checking account, savings account, cash receipts, etc. For credit cards I name the file by the bank name and the last four digits of the card number, i.e., "Citibank 4323." Lastly, create one more file called, "Bills Unpaid." This is the place to put all those annoying statements until you have time to write the checks. 2) Take care of the mail when it arrives. Now when you're ready to sit down and take care of payment, all your bills will be in place and you won't have to spend time going through each envelope before writing the check. 3) Use accounting software. "If you have a computer, then you should be using financial software." That's a quote. Why? Money is like the blood of your financial life. It flows into every aspect of what you do. It circulates in, out, and all around everyone in the family. By using your computer to track spending, you'll always know exactly what's going on, where money is being spent, and how to plan for new purchases. The most powerful aspect about using software is eliminating that checking ledger. I haven't written in a check ledger since 1987! I have searchable records of every credit card charge and check that I've written in my entire life! The best part is that I don't bounce checks. It's easy to balance your checking account using the computer. There's no adding, subtracting, etc. You just match the checks (and ATM withdrawals) with your bank statement and everything should balance. If it doesn't then you can quickly find the problem. You know how you sometimes get a bill that you think you've already paid? It's very easy to find out by doing a search with the computer. A word of caution: if you do use software then you MUST back up that data! It won't take long for you to completely abandon those paper ledgers, but PLEASE make a back up EVERY time you work on your bills! Keep in mind that tracking alone won't solve money problems. For example, in 1995 I created a report for the year that detailed all my spending by category. I spent 18% of my income on the mortgage, 11% on groceries, 9% for utilities, 6% on federal tax, 6% on social security tax, 6% on property tax, 5% on medical. Those are the top-spending categories which, used more than 50% of my income for the year. I cannot make changes in any of those categories unless I decided to sell my house, or cut back on food. Tracking lets me know where the money is going, but I have limited control over those categories. Areas I can change don't really add up to much, like 1.4% for entertainment. 4) Enter the transactions into the computer. Entering your transactions in the computer is the confirmation that your perception of what's going on matches your bank's. That means that your computer should be what's correct, and the credit card statement better match what your computer says or there's a mistake somewhere. It's your way to make sure you really did charge every item and write every check. It's the way to detect fraud and bank mistakes! 5) Pay bills on a specific day. It usually takes me about 2 to 3 hours to pay my personal bills once every two weeks. Once I start on this task I'm focused! I review every single credit card statement, check, transaction, credit offer, etc. to make sure that I'm receiving the best rates and lowest cost credit options. Each transaction is carefully recorded in the computer. It's important that on this "bill pay day" everything matches. My billing statement matches what I have in the computer and all accounts balance. All check numbers line up so there are no missing checks. 6) Balance your checking account. By balancing your accounts and using software to handle transactions you can easily avoid an incident that happened to a friend of mine. She accidentally wrote two checks for her mortgage and the mortgage company cashed both. The result was that ALL her other checks bounced like super balls! The cost, when the smoke cleared, for those bounced checks was more than $800 plus the aggravation of dealing with all the banks, freezing of accounts, and stress. 7) Create a list of all bills and debts. Each time you pay bills be sure to update the list. I started out with a list on paper then I moved to using Excel. Now, because I have so many credit cards, I had to create an Access database to track that information. You need this list to be your roadmap. It's a planning tool for future spending. You'll be able to see your spending plans at a glance. 8) Create a list of credit offers. I also keep a list of new credit card offers; however, I do prefer to take advantage of the offers from my current banks since I have a long history of doing business with them, giving me more bargaining power. The key here is to create these lists. This way, if one of your current credit cards raises their rate, you don't have to look very far to find a better deal. You don't have to keep a stack of mail to go through. You simply pull out the list and start calling! 9) Start a financial notebook. Whether by hand or in a computer this is very important! You need to have detailed notes when you contact your credit card banks, checking bank, mortgage company, etc. The reason is that sometimes the phone reps don't make the proper notes in your account, and you'll need to reference your notes to keep all those banks in line. Your financial notebook should include your strategies, for example, "Be sure to transfer the $2,000 balance from the Discover card to the Advanta 3.9% offer by 11/25." The beauty of keeping an organized notebook is that you can refer to your notes, which means you don't have to think about all the details all the time. So there you have it. I have followed these steps for financial organization for years with incredible results. I've keep my interest costs down, I only have to deal with bills and payment one day every two weeks, I rarely bounce checks, I have corrected many bank errors (never in my favor of course), and I don't have to think about financial details on a moment-to-moment basis For free information about how we can help you reduce your debt, please fill out our form. |
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