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Dealing with Debt Collectors

credit cardsTips and tricks to dispute the accuracy of the items of the credit report with the debt collecting agencies.

You must be aware of the fact that your credit score may drop with erroneous entries on the credit report. You can dispute with the creditors or debt collectors if you find any inaccurate negative information on the credit report. Well, you need to know that inaccurate and positive information on your credit report can’t be removed from it. So, if you’ve erroneous entries on your credit report, you can manage to dispute the erroneous items with the debt collectors directly. If you’re unaware of the tricks to dispute erroneous entries on the credit report then you need to correspond with the debt collector to remove the incorrect entries.

Here are some of the important points that you need to consider when you plan to dispute the inaccurate information from the credit report:

1. Know your rights: Make sure you’re aware of your rights to remove the erroneous entries from your credit report with the debt collectors who reported the information. So, you need to send a dispute letter to the company that provided the information to the consumer reporting agency.

2. Debt collectors job to investigate: The debt collectors report the agencies in regards to credit information immediately. Make sure the time frame of response is same when you send a dispute letter to a consumer reporting agency. In most of the cases, the company has 30 days for investigation and the this period may get extended up to 45 days if you provide additional information. Make sure you get information in regards to the credit information within five business days of completion.

3. The debt collectors may not respond to your letter: Well, the debt collectors may not respond to your letter if you contact the credit reporting agencies to dispute erroneous information on the credit report. If the debt collectors have already responded to the dispute, then it may not respond to your letters any more unless you provide more information.

4. Liability of the debt collectors: According to the Fair Credit Reporting Act, if the debt collector provides information to the CRA, he has to follow certain liabilities.
• Finds out more about dispute reported information.

• Provides accurate and complete information if the reported information is incorrect.

• Informs the credit reporting agency if the consumer disputes information.

• Checks when the accounts are “closed by the consumers”

• Sends the credit report agency with the required details like the month and years of the delinquent accounts given to the collection agency or charged off.

• Needs to complete the investigation of a consumer dispute within 30 to 45 days time span, so that credit report agency can manage to complete the scrutiny.

Therefore, you’re required to keep the above mentioned points in mind when your plan to dispute the accuracy of the items on the credit report with the debt collectors.

***This article was contributed by Anjelica Cullin.

A Financial Resolution for 2011

Happy New Year!  New Year’s resolutions often accompany the celebrations and revelry.  A majority of resolutions are related to personal health and fitness, which is understandable following a season dominated by parties and indulgent eating.  Christmas is also the time of year when people spend more money than expected.  The stress of the bills coming due can also lead to financial resolutions. 

January 1 is a great time to lose weight, get in shape and stop smoking.  It’s also a fantastic time to get your financial affairs in order.  What is one financial objective that you would like to achieve for 2011?

I won’t be surprised if your answer involves reducing debt, saving more money or living by a budget.  While these are common financial goals, they are not an exclusive list.  You can also include things like giving more money away, drafting a will, reviewing your insurance policies or buying a new home.

Whatever your objective, here are a few principles that will help to ensure your success.

  • Be Reasonable: If the goal is unreasonable, you’ll quickly become frustrated and discouraged.  It may not be reasonable to get out of debt in one year.  Instead, set a goal to reduce your debt by $__ or pay off certain credit cards.
  • Be Specific:  Vague goals like eating healthier or being a better money manager are hard to evaluate.  Your goals should be quantifiable and measurable.
  • Develop a Plan: Whatever you want to achieve isn’t going to miraculously happen.  Think about the steps needed to accomplish your goal. Your plan should also include a timetable.  Identify the actions and the dates for completion.
  • Write it Down: It’s easy for the urgent things of the day to overtake the important. Writing down your goals and plan will help keep you on track.
  • Measure Progress:  Don’t wait until December 31 to determine success or failure.  Periodically evaluate your advancement.  You may need to adjust your plan in order to still achieve your goals.
  • Be Accountable: Behavioral changes are not easy, and being accountable to someone can be the difference between success and failure.  You must have enough of a relationship to trust the person, be honest with them, and listen to their feedback.  They must also be willing to ask you the tough questions.
  • Reward Yourself: Develop appropriate rewards as you accomplish your interim goals.  It doesn’t have to be big or lavish.  It just needs to be something that motivates you.

I know it’s kind of morbid, but by December 31, 2011 you’ll either be dead or one year older. Assuming that you expect to be alive, would you rather have accomplished your financial goal or not?  If so, then develop a plan and have the resolve to see it through to completion.

If you do… it will truly be a Happy New Year… for the entire year and not just one day.

Budget Basics #10 – Creating Margin

In business and financial terms, margin is typically defined as the difference between income and expenses.  For your personal finances, it can be thought of living below your means.

It’s easy to look at someone who is successful and wealthy and think that they are successful because they never have problems.  The reality is that sooner or later, every person and business will experience struggles and challenges.  Success is often the result of surviving problems, not the absence of problems.

There are cycles to the economy and to most businesses.  Success comes to those who can persevere through the downturns and hold on until things get better.  Margin helps to buy you time until things improve, and it gives you flexibility to make adjustments to handle your situation.

Like many people, I had a lot of margin a couple of years ago.  I was giving away nearly 30% of my income; taxes consumed another 25-30%; and I saved/invested another 10%.  As a result, I was living on about 30-40% of what I made.  Within a matter of months, things changed dramatically.

In addition to the economic recession, Lady M and I decided to relocate from Vermont to the great State of Texas.  Within a six-month period of time, we went from three sources of income to one.  Including employer-provided benefits, our income dropped by about 45% in a matter of months.  Having margin allowed us to make that move.

We had to make some adjustments in our giving, savings and spending to reflect the reduction in our income.  Too bad we couldn’t adjust our taxes as well.  Our margin shrunk, but thankfully, we have weathered the storm so far.  We are working towards increasing our income, expanding our margin and restoring our level of giving. It’s taking time, but we’ll get there.

How big of a margin should you have?  There is no universal formula.  It all depends upon your income, lifestyle and ability to make changes.  Margin is a lot like an emergency fund.  It won’t solve all problems or keep you from experiencing challenges, but it will increase the likelihood you will survive a challenge when it arises.

Want a few tips on how to create margin.  Here are a couple of articles you can read which may give you a few ideas.

18 Means for Living Below Your Means by Mark and Angel Hack Life.

10 Smartest Ways to Live Beneath Your Means by Dumb Little Man.

Budget Basics #9 – Saving for an Emergency Fund

What is an emergency fund?

Businessdictionary.com defines an emergency fund as this: Money which is set aside for an emergency situation, such as unexpected unemployment or injury, or a natural disaster which destroys one’s home and belongings.

Get Rich Slowly has a great blog with several links to articles by notable authors’ regarding an emergency fund.  Rather than try to duplicate all of that content, just click here and check out the resources yourself.

I personally like Dave Ramsey’s approach to an emergency fund.    He recommends you target $1,000 as your emergency fund, which should cover a lot of unexpected expenses and repairs.  While it may be good to have an emergency fund that would cover 3-6 months of you expenses, it will take years for most people to save that amount of money. It’s hard to get started and motivated towards and impossible goal, but everyone has the ability to save $1,000 over time.

As most of the material written about emergency funds states, there is no universal formula to follow.  Each person and situation is different.   Keep in mind that few people can save enough to cover every potential emergency and crisis.  Just like insurance, there are too many catastrophes to protect against.  All you can do is cover the most likely risks and have faith that everything else will be okay.

One of the most important things about an emergency fund is tapping it only for genuine emergencies.  What’s an emergency?  Once again… that’s going to be your call.  When drawing down your emergency fund, a key thing to remember is the amount of time it will take you to replenish it.  If it takes you 6 months to save the same amount of money again, how will you cover another emergency during that period?

The following is an illustration of determining an emergency.  Every vehicle needs regular maintenance which includes brakes and tires.  Depending upon vehicle, 4 tires can easily cost $400-800.  Tires generally last about 25,000-35,000 miles.  If you drive 12,000 miles per year, you know that you’ll need tires in 2-3 years.  Is it an emergency when you have to replace them after 3 years of driving?  Is that different than having a blowout 6 months after you purchased new tires?

Why do so many people reference 3-6 months of expenses?  Assuming that you have disability insurance, you’ll find that many policies have a 13 week waiting period (i.e., 3 months).  The other principle is that 3-6 months gives you time to make adjustments.  During this time you hope to be able to find another job, relocate, trade cars, sell certain assets, etc.  It won’t be easy or pleasant, but in many areas of financial planning, time can be your best friend.

So… if you don’t have an emergency fund, start one this week.  Even a few dollars a week will eventually compound into an amount that can make a difference.  If you currently have an emergency fund, take a few minutes to evaluate your current situation and determine if it’s sufficient for your present level of spending, debt and peace of mind.

Budget Basics #8 – Ways to Cut Your Spending

I have had the pleasure of living with more money, and the joy of living with less.  I will tell you that it’s always easier to spend more than less.  No matter how much money you make, it’s difficult to ratchet back your lifestyle.

Your motivation for cutting your spending may be voluntary (you’re saving for something big) or forced (you lost your job).  No matter the reason, accept that there is no magic formula or simple solution to cutting your spending.  Your success will depend upon your willingness and ability to exercise self-control and discipline.

The following are a few principles and techniques that you may find helpful.

  • Cash – Generally, you will spend less money if you pay cash.  You can also implement an envelope system Dave Ramsey highly recommends.  Basically, you put cash in various envelopes for each type of expense and only spend what’s in the envelope.  For instance if you have a clothing envelope, you only buy clothes with the allocated cash.  When the cash is gone, you stop buying. 
  • Cheaper Options – Review your budget to see how you might maintain a type of service, but use a cheaper option.  Cable tv and cell phones are good examples.  Do you really need the DVR, movie channels or the unlimited data plan?  Eliminating options and extra services can cut your bill by 25-50%.  Having all the bells and whistles may be nice, but it may not be worth the added expense.
  • Cutbacks – Rather than completely eliminating expenditures, reduce the frequency.  Entertainment is a great example.  You can still go to the movies or eat out; just don’t do it as often.  Go once a month, rather than once a week.  You may be able to really curtail your spending if you cutback the frequency and select a cheaper option.
  • Eliminate – Completely eliminating an expense can be the hardest thing to do.  Unless you like to throw away money, you obviously had a reason for spending the money in the first place.  It can be difficult to let something go.  Acknowledge the sacrifice you are making, but keep in mind that’s it’s less important than one of your higher priorities (like paying your mortgage).

No doubt, curtailing your spending is hard.  Changing behaviors and sacrifice is never easy.  You may not get it right every time, but don’t give up… and don’t keep overspending.  It may take a little while, but you can control and cut your spending if you remain focused and diligent.

Hint: Stay more focused on what you are going to gain by cutting your spending than what you are losing.  It will be much more difficult if you are constantly thinking about what you can’t have or can’t do.  Far better for you to think about what you’re going to achieve.  It will be your reward for trimming your spending and managing your money well.

Budget Basics #7 – Gaining Control of Your Spending

A budget doesn’t control your spending.  Only you can do that.  If used correctly, a budget can help guide your spending, but it’s your choice where the dollars flow.

There are things you need to purchase and money you must spend that is completely beyond your control.  You don’t voluntarily choose for a child to get sick or the washing machine to break down.  However, most of your spending decisions are a personal choice.

The way you gain control of your spending is to change the process you use to spend money. It also happens to be the most difficult, because it involves changing your behavior. 

I contend that you lie the loudest and most often when you lie to yourself.   Your ability to control your spending will be dependent upon your willingness to be honest with yourself, and if you’re married, to be honest with your spouse.  An honest assessment about your priorities, preferences, habits and personality are all important.

  • Priorities – You need to prioritize what’s most important to you.  Is it a car, vacation, house, jewelry, clothes, saving for retirement, etc?  You may not have it all, but you can have some of it if you are willing to forego certain items in order to save/spend for something else.
  • Preferences – Generic vs. name brands is a common choice with food and clothing.  I agree that there can be a difference in quality, but you have to decide if it’s worth the extra money you pay for a particular brand or label. 
  • Habits – Excluding major purchases, you probably have a lot of spending habits.  Are you a comparison shopper, or do you choose the first item you see or whatever has the coolest looking package?  Are you always crunched for time, so you eat out rather than packing a lunch or have take-out instead of cooking?  Changing habits can be difficult, but it can be the key to freeing up money for something that’s a higher priority.
  • Personality –If you’re impulsive, you may tend to buy on the spot, and maybe regret it later.  Feeling a little down… how about some retail therapy to lift your spirits?  Your personality affects the way you spend money.  The more you understand yourself, the better you will be able to identify and avoid situations where you are not making good financial decisions.

The discussions Lady M and I have about finances involve these topics.  We don’t get into the, “you spent how much on what” type discussions.  Communication is the key for us coming to agreement in how we prioritize and control our spending. 

I am a high pressure salesperson’s nightmare, because I do not make any major purchase on the spot.  I’m an analytical person, so I need time to think it through.  The worst financial decisions I have made came when I had to make a quick decision.  You know the line… buy it now or you may lose out.  I operate under the philosophy that if it’s gone when I come back, then it wasn’t meant to be.

Lady M is a lot more spontaneous than I am. She also has a real affinity for designer items.  Before I met her, I had no idea who Louis Vuitton, Kate Spade, and David Yurman were.  I might not see a difference between a $50 handbag and a $500 one, but she does.  If it’s important to her, then it becomes important to me, and to our budget.

 We have worked to understand and adjust for our differences.  Lady M knows that we won’t buy a car the first time we go to a dealership.  I know that our travels and vacations will include shopping (and sometimes buying) handbags and jewelry. 

By being honest with ourselves and each other about our priorities, preferences, habits and personalities, we have modified our behaviors to collectively control our spending, so we both win.  You may find these may be the key to controlling your spending as well.

Budget Basics #6 – Monitor Your Spending

I’m assuming that you created a monthly budget, which means you have decided what budgeting tools and technology you are going to use, created a budget and are tracking your expenses.   All of this work has been laying the foundation for you to really maximize the benefits of your budget. 

To start, you should be tracking your expenses and monitoring your budget at least on a monthly basis.  As close to the end of the month as possible, input your actual monthly income and expenses into your budget.  There should be a column which compares the amounts you budgeted with the amounts you actually earned and spent.  Budget software, templates and online services will do this automatically for you.  If you are using Excel or a similar spreadsheet, create a simple formula that calculates the difference.

Look through the categories and review the large discrepancies, positive and negative.  Significant variances can be an indication of an error, or they may have resulted from a change of events (i.e., an unexpected car or home repair).  Your primary objective is to have a reasonable understanding of the variances so that you can consider the implications for your future spending.  Was it an anomaly or something that will be recurring?  For example, if you spent $200 more on food, did you underestimate your food budget, or did you have a birthday party for one of your kids which accounted for most of the extra expense?

Having completed a complete budget cycle, you’re in a great position to prepare your next month’s budget.  Start preparing your budget for the coming month by looking at your budget and actual income and expenses for last month.  Give some thought and analysis to how your spending for next month will compare to last month.  If you know you’ve got to get new tires for the car or have a scheduled medical appointment, include these amounts into your budget.

There will always be something that is unknown and unexpected.  However, the more you work with your budget, the smaller the variances you should have each month.  Remember that your budget should be based upon your goals and priorities. By monitoring your spending and comparing it to your budget, you’ll be able to evaluate how well you’re spending to achieve your goals.

Controlling your budget and spending will be the next budgeting principle we address.

Budget Basics #5 – Track Your Spending

Accurately accounting for how you spend your money is an important step in the budgeting process.  Incorrect information will make it difficult to alter your spending habits to better achieve your goals. 

If you are struggling to pay your bills and manage your finances, accounting for your spending is extremely important.  It can also be helpful even if you have plenty of money.  After seeing how much you spend for certain things, you may decide to modify your behavior and reallocate your finances towards something that is more important to you.

Here is a simple personal example.  I do not consider myself to be a connoisseur of coffee, but I like it.  Starbucks’ peppermint mocha latte is probably my favorite.  Cost… $4-5 a drink.  I usually only drink them when they are featured during Christmas.  I know I can get one any time, but the caffeine, sugar and fat content is too much for my diet to handle year-round.   If I drank one every day, it would add up to about $1,400-1,500 annually.  Alternatively, I can buy a 2.5lb bag of whole bean Starbucks coffee at Costco for $20, which lasts me 2-3 months drinking 2-3 cups per day.  Thus, I can feed my caffeine fix at home for about $100 a year.

I realize there is a time and ambiance factor.  It takes a few minutes to brew your own cup of joe, but it’s probably less time than waiting in line at most coffee shops in the morning.  Then there’s the ambiance.  There is something tantalizing about stepping through the doors of a coffee shop and smelling the aroma of a fresh brewed pot.  But for me, it’s not worth the extra $1,000 per year. 

This is simple example of why I think it’s important for you to track your spending.  Dropping $5 at Starbucks is not that big of a deal.  However, when you add it up over the course of a month or year, it turns into real dollars.  For me it’s brewing my own coffee, but it might be something different for you. 

Now that I’ve given you a bit of a rationale for tracking your expenses, here are a few pointers of how to do it.

Your bank and credit card statements will track a lot of things for you.  Checks, online banking and automatic bill payments will cover most of your major recurring expenses.  Your bank and credit card statements also record every time you swipe your debit or credit card.  One key point here – save your receipts.  While spending at some merchants will be obvious, others will not.  Wal-Mart, Costco and a number of other major supermarket chains also sell gas and medicine.  Receipts will allow you to differentiate whether you are spending on food, gas, clothing, medicine, gifts, etc.  Since your statements often come weeks after your purchases, it’s easy to forget what you bought on a particular day.

Although we continue to move towards a cashless economy, you may still pay for some items with cash.  You should have a system to track your cash expenses.  I would recommend an inexpensive application for your smart phone, or a pocket-size notebook that you can write down your expenses. Tracking your cash is very important if your budget is tight or you pay for a lot of things in cash.  Simply throwing all cash expenses under miscellaneous may not give you an accurate picture of where your money is going.  Cash is where a few dollars here and there add up to a significant amount over a month’s time. 

How detailed do you need to be?  There is no universal formula, but here is a quick rule of thumb.  If you thought it was important enough to create a category, then track spending for the category.   If not… what is the use of the category?  As you progress you may adjust your budget by condensing or expanding the categories.

Remember, the key to a budget is to help you make wise decisions.  Maintaining meticulous spending records that have no impact on your spending is a waste of time.  Conversely, improper tracking of your expenditures will distort the reality of where your money is going and hinder your ability to make good decisions.  In a nutshell… good information = good decisions.

After you have created a budget and tracked your expenses, now what?  Monitoring your spending.

Budget Basics #4 – Creating a Monthly Budget

Pull out your spreadsheet you created in Budget Basics #2 and sit down with whatever you software or program you are planning to use to keep your budget.  Here are 6 simple steps to creating your budget.

Step 1

Enter your monthly take-home pay.  If you’re on a salary or fixed income this is relatively easy.  If you’re self-employed or have an unpredictable work schedule, it may be a little more challenging.  The best advice I have for this step is to be realistic.  If you only work overtime occasionally, don’t include it.  I think it’s better to have a little extra left over at the end of the month, rather than be overly optimistic and having to find places to trim your expenses when you realize the money is not there.

Step 2

Enter the amounts for your fixed monthly expenses that can’t be altered or changed without significant personal or financial consequences.  Items to be entered in this step include your rent, mortgage payment, car payments, and all other debt payments.  If you have any outstanding credit card debts, use just the minimum monthly payments for now.  If you have very strong convictions about tithing or giving, then put that in this category.  Otherwise, classify your contributions in a subsequent step.  Keep in mind that the more items you consider to be fixed expenses, the less opportunity you will see for managing your finances and altering your spending.

Step 3

Enter your living expenses.  Include expense such as food, utilities, car insurance, gas, commuting expenses, medicine, and child care. Refer back to your monthly average spreadsheet for this task.  You may not have an exact amount for these categories, but you should be able to create a reasonable estimate from your 3-month average.  Try to limit this to the expenses that are necessary for your family to survive. You or your kids may think you can’t survive without cable or cell-phone services, but you can.

Suggestion: If you’re having difficulty managing your finances, check with your local utilities to see if you qualify for a monthly payment plan.  Many utilities will review your consumption history and calculate an amount you pay each month.  You will ultimately pay for what you actually use, but it might help you to handle large spikes in your utilities during the cold of winter or heat of summer.

Step 4

Now consider discretionary living expenses which are important but have flexibility in how much you spend or when.  Clothing, haircuts, gym memberships, life insurance, cable, cell phones are good examples.  If you have a lot of extra money, you may be able to maintain your current plans and spending habits, but if you’re starting to realize you have more expenses than money, these become some of the expenses you can target for reduction.

Step 5

Add in your discretionary expenses.  Adding money to a savings account should be one of these items.  I’ll cover the importance of having an emergency fund later.  Retirement savings, vacations, Christmas presents, saving for a down payment on house, paying off debts would and college savings all fit within the category of discretionary expenses.

Step 6

Review your draft with your priorities and values in mind.  Remember, the primary purpose of a budget is to have a strategic tool to help you allocate your resources in a manner that accomplishes your objectives.  If your spending does not line up with the things that are most important to you, then you should determine what changes you can make for your spending to align with your goals.

Suggestions: Along with looking how you can trim your expenses, think about how you might increase your income.  It may not be feasible, but at least consider the possibility.  It may also be a necessity if you’re going to meet your long-term goals.  Our minds often focus on what we lack rather than what we can create.

If you have a deficit budget, take a careful look the numbers.  Did you double-count something?  Were you too conservative with some expenses?  If you truly do have a deficit, you’ve got some tough choices to make, especially if you have little in the discretionary expense category.  Review the expenses in Steps 3 and 4 and see what you can modify or eliminate. 

If you have a budget surplus, review your budget to make sure you didn’t miss something.  If it’s still in positive territory, you’re in great shape.  Before you start bumping up those discretionary expenses, I would suggest you stick with the budget you created for a couple of months to see if you truly do have a surplus.  If you actually have money leftover at the end of the month, save it.  You can always decide to spend it later.

Now that you’ve created a budget, we’ll address the next step in the process… tracking your expenditures.

Budget Basics #3 – Budget Tools and Technology

There are a multitude of technology tools you can use to create and monitor your budget.  I will be very upfront and tell you that I am not going to recommend you use a particular product or service.  I haven’t done enough research to consider myself and expert, nor do I have a vested interest in selling you a particular product.

Over the past 20 years, I have used two tools for my budget; a spreadsheet and Quicken. For the majority of the years, I simply used the spreadsheet.  Once I had the format down, it was easy to replicate each month/year. The transition to Quicken was motivated more by my desire to easily track my checking and savings accounts, than for budgeting, but it easily does both.

If you utilized a spreadsheet in coming up with your average spending for the past few months, you can probably modify it rather quickly into a monthly budget.  Excel also has a budget template you can download.  Want something a little more sophisticated?  Do a Google search for budget planner, software or worksheet and you’ll have a plethora of options to consider.  You can opt for software to download, or you may also consider using an online service. 

Here are four criteria I would consider in making your selection.

  • Inexpensive (or free) – since there are many great free options, I wouldn’t pay for it unless you want features beyond budgeting
  • Easy – technological difficulties will only make you like budgeting less, so if you’re having difficulty using something, find another product that works for you
  • Flexible – customization of categories and measurement is necessary to get you the information that is important to you
  • Reporting – reports, charts and graphs are helpful visual tools to see how your income and expenses are tracking

If you have an opinion regarding a particular product or service, I invite you to share your thoughts.   A reader, Suzie, suggested mint.com in a prior post.   Honestly, I had not heard of it before, so I’m glad she made the suggestion.  Maybe you can enlighten me and other readers as well.

Coming next in Budget Basics #4, we’ll discuss creating a monthly budget.