Using Craigslist and eBay to Make Ends Meet

We've promoted it in our posts about how to make ends meet during an economic downturn and advised consumers struggling to make their mortgage payment to do it...now the statistics are there to prove people it. Consumers appear to be selling on Craigslist and online auction sites in order to make ends meet.

The number of Craigslist sale listings doubled in March 2008 over March 2007.  In this Marketplace story, a residential mortgage banker is out of work and selling his collection of vintage amps and guitars.

If you're considering selling online to raise some extra cash or make ends meet, here are a few tips:

• Watch out for scammers. Online selling can be fraught with fraud and scams. eBay has a great security center full of tips and resources. Craigslist has a similar page of warnings.
• Calculate shipping and "handling."  Be sure to include the shipping, packaging and cost of your time in with your prices.
• Research. Look at postings for similar items to get an ideal of the market price and important features to highlight.
• Be persistent. You may need to list a large ticket item for a few weeks or more to lure a seller.  Repeated postings help keep your sale fresh.
• Find the best place to sell. You may have better luck selling a car through AutoTrader.com or an antique piece through an auction house. You'll pay for these services but should also get a higher price.
• Don't forget the old fashioned garage sale. A few signs, some stickers and an early morning wake-up are all you need to have a garage sale at home. Use this method for lower priced items or heavy pieces you don't want to ship.
• Take a hard look at your finances. Selling off some items can be a good way to raise cash for reducing a debt or covering a short term need, but it isn't likely to solve larger financial problems. If you fear that foreclosure on bankruptcy is ahead, start looking to your options now.

I may be an example of this online selling trend in action. Although, my finances are fine and I'm not struggling to pay a mortgage, I used eBay for the first time last month and made $200! Are you jumping on the online selling bandwagon?  Share your story in the comments section below.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Household Debt has Grown 152% - Credit Card Debt is Up 75%

A big shift has occurred in the levels of debt carried by US households, the government and businesses. In the past 10 years:

• Household debt has grown 152%
• Household credit card debt has grown by 75%
• Business debt has grown by 110%
• Government debt has grown by 72%

I had recently tracked these Federal Reserve consumer debt numbers for a reporter. They're even more shocking when put in comparison to government and business debts, as the Nilson Report, a credit card industry journal, did in their latest issue:

Keep in mind that these numbers don't consider inflation (2.2% a year on average).

If you are part of the growing household debt statistic, take action! It is an ideal time to get out of debt. Use your tax refund and economic stimulus check for a jump start. Negotiate reduced interest rates with your banks. Sign up for a free financial tracking program like Mint.com. Or consider getting professional debt help.

Are you working on reducing your debts? Share your questions or tips in the comments section below.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Stop Debt Collectors: Credit.com CNN Issue #1

Are you being harassed by debt collectors? From unpaid credit cards, to library or parking fines, or medical bills that your insurance company was supposed to cover, the chances that you will get a call or letter from a collection agency are on the rise. Even if you dispute a bill, a collection agency may wield its power and put a ding on your credit report before it has verified that you owe the debt.

That's why it is so important that you understand your rights. Of course, you should pay bills that you owe. Today, though, there are many people who are trying to juggle putting food on the table and fuel in the car. Adding in the stress of constant calls from persistent debt collectors can be too much.

Yesterday, I was interviewed on CNN's Issue #1 about aggressive debt collectors. It's a great program that deals with the top issue facing most of us today: the economy. When the interview goes online I'll be sure to post a link.

After the interview the cameraman (Mike at WEDU in Florida) told me his debt collection story. An employee at the gym where he worked kindly let him out of his membership early. A year later, a debt collector called. He explained to the collector that it was a mistake, and he would just go over to the gym to straighten it out.

"No you won't," she threatened. "I am going to call the gym and tell them not to let you in the front door."

"Then you'll have to race me," Mike said. He hung up, and headed straight for the gym, arriving as the collector was calling them. Fortunately, the employee who had agreed to let him out of his contract still worked there and cleared it up. If he had left, it could have gotten much uglier.

I have written a new book together with personal finance expert Mary Reed and consumer law attorney John Ventura. If you're stressed out by debt collectors, our new book Stop Debt Collectors will give you the tools you need to protect your rights and resolve your debts.

The book is in production and will be ready shortly. In the meantime, send us an email at book(the at sign)credit.com so we can let you know as soon as it is available.

Gerri Detweiler – Personal finance author, radio host and credit expert. Gerri contributes budgeting, debt recovery and savings information online.

Reader Question: Can Unpaid Credit Card Debt Be Added to My Mortgage?

"Marcia" from Texas contacted me because she was considering entering a debt settlement program (with a company I'd never heard of) to negotiate payment on the substantial debt she owed. But the representative warned her that since one of her larger credit card balances was with the same company that held her mortgage, she should leave it out of the program. Otherwise, the creditor could add her unpaid credit card debt to her mortgage loan. "Is that true?" she wondered.

It didn't sound right to me, but I checked with the experts to confirm my suspicions.

Consumer Law Attorney and author John Ventura said:

The only way I know that you could add unpaid credit card debt to a mortgage is when a person signs a contract containing a cross collateralization clause. That is a clause that says that if you have a loan that is collateralized with something, normally a car, you agree that any additional money you borrow from the company is also collateralized. I have not seen this much.

This consumer would have to read the contract she signed and see if there is any language in the contract that cross collateralizes any other loans with the collateral from a separate loan. I do not think this works in Texas on a homesteaded property anyway, because Texas law says that you can only take liens on homesteads in limited circumstances such as a purchase money loan, remodeling loan, or with tax liens. Texas does not let unsecured creditors obtain liens on homesteads after a default. You cannot get a lien on a homestead in Texas, even if the creditor gets a judgment. I would recommend this consumer talk with a real estate attorney to confirm this.

Debt negotiation expert Charles Phelan says:

I've never seen this happen in ten years of doing settlements. I don't see how they could just add an unsecured debt on top of a collateralized mortgage without rewriting the home loan. Also, I've had many clients successfully settle unsecured debts when the same creditor held a mortgage. I would advise the client to include the account in the settlement program, with the aim of settling before charge-off. It's extremely unlikely that the mortgage would ever even come up in the negotiations.

The bottom line is, I don't think this consumer needs to worry about unpaid credit card debt getting tacked onto her mortgage. But I do think she needs to find a knowledgeable debt settlement firm! I would recommend she read my advice about debt settlement, and then get a free consultation from a reputable firm.

Gerri Detweiler – Personal finance author, radio host and credit expert. Gerri contributes budgeting, debt recovery and savings information online.

Top 10 Ways to Get out of Debt

We're deep in the heart of debt season. Most of us are still working on catching up from holiday spending and many are facing a big tax bill in the next few weeks (I know I am!). If you're struggling with debts, here are ten ways you can get out:

1. Stop Charging - This one may seem obvious but you'd be amazed at how many people continue using their credit cards while also trying to get them paid off. It doesn't help.

2. Bank Online - Sign up for a free money management program online. I use a program called MoneyCenter from Yodlee. These systems let you easily track your total debt balances, payment due dates and net worth. Log in at least once a week to see your progress.

3. Look for a Low Rate - A higher interest rate makes it that much harder to get debt-free. If you have a good credit, look for a credit card with a low rate/0% introductory period and an affordable balance transfer plan.

4. Do the Math - Face your debt demons head on. Use an online calculator to see exactly how much time and money it will take to pay off your debts.  Adjust the numbers to find a  payment you can afford.

5. Get Professional Help - If you're feeling overwhelmed by your debts, talk to a trusted debt adviser. Credit.com can help you decide if a debt consolidation, debt counseling or debt settlement program might be right for your situation.

6. Put on the Freeze - Having a hard time with #1? Try leaving your credit cards at home in a locked drawer. If temptation still strikes, you can freeze your credit cards in a block of ice (ziplock bag filled with water). If you need to use the cards, you have to wait for them to thaw out first.

7. Cut Back - You can easily cut a couple hundred dollars out of your monthly spending by canceling cable, pausing your gym membership or selling an extra car (insurance and loan payments, a double whammy). Putting this extra money toward your debts could make a big difference.

8. Negotiate -  You have some power when it comes to your contract with the credit card companies. Call the remediation department at your banks to see if you can negotiate a reduced APR. Play hardball.

9. Budget -  The dreaded "B" word.  Does it help to call it a "Spending Plan" instead? Not really. Our downloadable budgeting worksheet makes it a little less painful to set some financial goals.

10. Make More Money - There are really only two fundamental ways to get out of debt: spend less or make more money. Both would be ideal. You could ask for a raise at work, take on overtime, get a second job, hold a garage sale or sell somethings online. Put all your extra funds straight toward your debts.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Reader Question: Should I continue with debt settlement or just pay off my accounts?

Christina wrote in today with a tricky situation, she's between a rock and hard place when it comes to getting out of debt:

Currently, I am signed up in debt settlement, with consumer credit counseling. I still keep getting threats to be sued for the credit card bills.  When I get my income tax return should I just take the bills and pay them off to avoid totally ruining my credit history?

I am going to turn in my lease in a year and I don't want to be denied another lease/loan because of those debts. What should I do?

This is a bit of a quagmire. Usually, once you enter debt settlement, makes sense to stick with it to the end. A lot of the damage has already been done to your credit (debt settlement involves stopping your bill payment and that leads to a lot of damaging late records). You could still get a reduced settlement amount and the creditors may or may not be serious about suing (the larger the amount, the more likely they are to take action). 

It really depends if Christina feels that the counseling program is doing a good job negotiating on her behalf and her case will be resolved soon. Or if she feels that she's just wasting time.

If she does have the money to repay her debts, this can also be a good option. She may end up paying more toward her debts, but she'll stop new late payments from reporting to her credit records. If she does decide to pay, it is important to get the final agreement in writing from the creditors so they don't continue to try collecting on the accounts in the future.

Either way, her credit won't likely improve that much in the next year. Late payments over 90-days cause credit score damage for up to 7 years. It's only the 30 and 60-day late records that cause temporary harm. If she pays off her debts quickly and works really hard to rebuild healthy credit (paying her bills on time, maintaining a low debt-to-limit ratio, applying for credit in moderation), she could see some improvements before the lease turn-in next year.

In this case, it really comes down to time vs. money.  She can save time and start rebuilding earlier by paying the debts off now. Or she could save money by waiting for debt settlement to produce a reduced repayment amount. What would you do?

Emily Davidson – Credit.com credit expert and former TransUnion insider. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com moderator.

Student Loans Create Credit Report Nightmare

Jordan asks:

I had a student loan in 1998 which was in 2 parts; one being $300-400 the other $2500-2600. When I received the student loan I was not aware that it would generate as 2 loans. I got behind on repayment and eventually my income tax was attached and it was paid in full; paid off early 2005.

The loans were through a bank but managed by Sallie Mae Servicing, guaranteed by the Texas Guaranteed Student Loan Corporation.  The problem is that I have this listed on my credit report 3 times for each part of the loan.  That makes a total of 6 negative entries on my credit report for this Loan. Negative listings twice by Sallie Mae and once by TGSLC, I have tried to dispute that it is listed 6 times for the same thing but can not get the credit bureau to do anything. How can a creditor legally list something on a credit report numerous times for the same thing and how do I resolve this?

Also, creditors put a negative entry on my credit report; then sell it to a collection agency.  Why can they list the original creditor entry and also the collection agency entry on my credit report for the exact same credit item? This does not seem fair or right that they can stack your credit report with negative entries and I have tried addressing this with the creditor and the credit bureau with no resolution. All they do is keep telling me that the entry will remain for a ridiculous amount of time.

An item has been on my credit for 6-7 years and it is sold to another collector; basically they say that it can then remain on my credit report for another 7 years.  I try to be financially responsible but most of my credit issues are due to a divorce and getting laid-off from work 3 times (3 different companies) since 1995.

A. This is extremely frustrating, I realize. As our resident credit scoring guru John Ulzheimer points out,
"Student loans are a unique animal in the credit world." Let's see if I can help clarify things for you.

It is very typical for what seems like one student loan to turn out to be multiple loans. Each of these loans can be reported for up to seven years (for negative information) or indefinitely if the information about the account is positive or neutral.

Even if you had consolidated your two loans into one, the two original loans would have remained on your credit reports for the time frame I just described. But any previous loans should show zero balances and only the new loans should list any outstanding balances.

I contacted Sallie Mae about your predicament and they gave me the standard credit advice: "Consumers may submit a dispute for any loan that is reflected on their credit report by contacting the particular credit bureau. The credit bureau will then forward an Automated Credit Dispute Verification (ACDV) to the organization in question. It is the credit bureau's responsibility to respond to the consumer. Sallie Mae's policy is to review disputes and respond promptly to the credit bureau; however, our customers are welcome to contact us at any time, and we will assist them."

I haven't seen your credit report, but it sounds from your letter that you fell behind on the first two loans, and they then were sole to TSLGC. I am not sure why Sallie Mae would be reporting the same loans twice unless you consolidated (which should result in one new loan, not two). So perhaps you need to try to contact them once more through their Customer Advocate Unit and ask them to explain why the duplicate accounts are appearing. 

You are also concerned about some other collection accounts on your credit report. If your account is delinquent and turned over to collection agency, the rule is that both the original account and the new collection account can each be reported. I know it seems very unfair that two accounts can be reported for the same debt, but that's generally considered accurate and acceptable. As I said earlier, though, the first account should reflect a zero balance. If any of the information about either of those accounts is inaccurate or incomplete, you have the right to dispute them. If the credit reporting agency cannot verify the information with the source reporting it, it must be removed.

Finally, with regard to the other collection items on your report, it sounds like the debt collector has given you wrong information. Collection accounts can only be reported for up to seven and half years from the date you first fell behind with the original creditor. That's true whether they are paid or unpaid. The collection agency cannot extend that period.

Making a false statement is illegal under the Fair Debt Collection Practices Act. I would suggest you talk to a consumer law attorney and/or your state attorney general's office about the agency that has misled you.

For more credit advice, I suggest you visit Credit.com's Learning Center.

Gerri Detweiler – Personal finance author, radio host and credit expert. Gerri contributes budgeting, debt recovery and savings information online.

Calling for collection account stories!

Have you ever had a collection account related to parking tickets, library fines, child support payments or another type of government debt? It's fairly common for state and local government agencies to sell overdue consumer accounts to private collection agencies.

If you fit this category, we want to hear your story! Send an email to emilyblog@credit.com as soon as possible.

Debt Elimination: When Is A Debt Truly Canceled?

A reader has ignited quite a debate among the debt experts.

"Tricia" is trying to settle her debts. One of her creditors had sent her a 1099-C, which is the form used to notify the IRS that a debt has been canceled or forgiven. (See, the IRS considers a forgiven or canceled debt as "income" and wants a piece of the action. But that's fodder for another post.)

Tricia had been told that the 1099-C didn't mean the debt was truly canceled. The balance could still be turned over to a collection agency and she would have to then try to work out a settlement with the debt collector. It didn't sound right to Tricia, so she started asking the experts, and that's when things got interesting.

In one camp are the experts who agree with the opinion above. The creditor may have written off the debt, the say, but it can still be sold off to a collector and she would have to pay if the collection agency comes after her.

On the other side are those who believe the 1099-C is proof the debt was canceled. If she hears from a debt collector, they advise, she can fax them a copy of the 1099-C and they would have to leave her alone.

When Tricia contacted me for my opinion, I decided to to straight to the "top" and offered to ask the National Consumer Law Center. The NCLC is known as "America's Consumer Law Experts." Their motto, which they live up to, is "Protecting Vulnerable Consumers and Promoting Marketplace Justice." Not only do they publish voluminous manuals on consumer protection laws (including the Fair Debt Collection Practices Act) but they also develop important consumer protection initiatives, such as a recent study of High-Fee Predatory Credit Cards.

Deanne Loonin, a highly respected attorney for the group, responded to my inquiry. After informing me that the question caused "quite a stir" at her office, Deanne said:

...the bottom line from what we found is that the issuance of IRS form 1099-C is evidence of the creditor's cancellation of the debt justifying the denial of a proof of claim in bankruptcy or foreclosure.  That evidence of cancellation may be rebutted by a corrected form 1099-C stating that the debt was not canceled.

I am not an attorney, so I wanted to make sure I understood her answer. I asked her: 

So if I understand you correctly, the 1099-C indicates the debt has been canceled, but the creditor can later submit a corrected 1099-C and then resume collection activity?

Deanne replied:

Well, this was more of an evidentiary issue if it is raised in court. In that case, the 1099-C is evidence for the debtor that the debt has been canceled.  The creditor could rebut the evidence by introducing a corrected version, but I don't think that happens often. Whether they can resume collection depends on what the corrected version says.  It could just be correcting the amount canceled. 

It sound like Tricia should hold onto a copy of the 1099-C and provide it to any collector that later tries to collect the debt. If a debt collector is persistent, or tries to take her to court, she'll need to talk with a consumer law attorney asap.

In the meantime, though, she'll have to find out whether she must pay the IRS taxes on that forgiven debt.

Reader Question: Getting Off the Debt Treadmill

Here is a question I received from a reader:

I was listening to one of your interviews on the wsradio archives. What does the person that has a moderate amount of debt, $19,000 in credit card debt in my case, but is current on all accounts, do?  I've been able to stay current, but am afraid I will not be able to much longer.  I've eliminated every discretionary expense I can such as cable TV, the newspaper…  and am on a budget.  I'm trying to sell one of our cars to get out of that payment but have not been successful as yet.  My income barely meets our basic monthly expenses, food, mortgage, gas… and credit card minimums.  Any extras or emergencies go on the card.  Would debt settlement be an option?

A: First of all, you should be applauded for trying to do everything you can to stick to a budget and control your spending. I know that is not easy to do. It sounds, though, that you have come to the conclusion that your income is not enough to pay living expenses and cut your debt, much less save for emergencies.

At this point, then, you have a couple of options to look at: increasing your income, reducing your debt, or both.

I don't know enough about your situation to suggest ways to increase your income, but from your email it sounds like you have a job and may have a spouse. If either of you can generate some extra income, it might be enough to help you accelerate your debt payments. I would encourage you to really think about this, even if an answer doesn't come immediately. (I am going to send you a complimentary copy of Invest In Yourself: Six Secrets to a Rich Life, the book I wrote with Marc Eisenson and Nancy Castleman, which talks about how important it is to have an "Ace In The Hole.")

At the same time, $19,000 is a good chunk of credit card debt, and you'll need to find a way to get it paid off. I would like to recommend you get a free debt consultation and find out whether credit counseling will work for you. If it won't, then debt settlement may be another option for you to consider. Either way, the consultation is free and confidential, and won't affect your credit.

I realize that because you are current right now, you're probably not anxious to do anything that would affect your credit rating. But don't let that cloud your decision. The most important thing to focus on right now is getting out of debt so you can start saving for the future. You can always rebuild your credit when you are debt-free. While your credit is important, also think about what that debt is costing you each month, and how much you will be able to save and invest when it is paid off.

Let us know how things turn out for you!

Gerri Detweiler – Personal finance author, radio host and credit expert. Gerri contributes budgeting, debt recovery and savings information online.

How to Legally Eliminate Your Debt

Did you know that your credit card balance, no matter how large, is actually illegal? In fact, banks and credit card companies don't have the authority to lend money or issue credit. By borrowing from the Federal Reserve, lenders use your signature when you open a credit card account to "create" money they lend back to you! You can't owe ever truly owe the bank any money because they never really lent you their money in the first place. Pretty clever, huh?

This is very hush-hush information the banks and credit card companies definitely don't want you to know. But I can show you how to legally eliminate your debt forever without paying a penny to your creditors -- and without filing for bankruptcy. My fee to teach you this system is only $2000 and if you want my one-on-one help it is only $5000. Don't worry if you don't have that kind of money. I accept credit cards, and you will be able to eliminate the fee when you wipe out your debt.

All right, so I don't really promote or sell debt elimination programs. (I could probably retire in a couple of years if I did -- though it might be to a jail cell.) But if you got even a bit excited about my proposition you'll see how enticing those arguments can be. And if you were immediately skeptical, then it will come to no surprise to you that debt elimination is not a "completely legal" easy way to wipe out your debt. Here's what you don't hear:

1. You may wind up with more debt when you factor in the debt elimination fee (usually several thousand dollars).

2. Debts you eliminated may come back to haunt you years after you complete the program. (And the company that sold it to you may be gone.)

3. You may have to file bankruptcy anyway.

4. The removal of an item off your credit report does not mean the debt is eliminated.

Debt elimination is not the same thing as credit counseling or debt settlement, which involves negotiating lower interest rates or a lower pay-off on your debt.

It's true the Federal Reserve's monetary policy – and the Federal Reserve itself – are controversial. I am also well aware that some consumers have had some success with these types of programs. Over the past few years lenders have been enjoying record profits, and they were willing to write off some challenged balances rather than get embroiled in lengthy and costly disputes.

But I strongly expect to see more of these programs challenged, for a number of reasons:

1. The Office of the Comptroller of the Currency has recently published a warning about debt elimination programs that has been distributed to member banks. A higher profile will lead to more awareness, and challenges to these methods. 

2. Many card issuers today have arbitration clauses in their contracts with consumers, which force consumers into an arbitration setting where a jury is less likely to be susceptible to one of the convoluted elimination arguments.

3. Issuers are suffering higher losses as a result of the credit crunch, and that means they are going to have to get more aggressive about collecting bad debt – including challenged debts -- or face disgruntled investors.

Don't just listen to me. Here are just a few others who are warning about these scams:

The Federal Reserve (I know, the debt elimination folks will say they are not telling the truth but it's only fair to hear their side of the story),

The Federal Deposit Insurance Corporation (FDIC),

Debt settlement expert Charles Phelan, the

Better Business Bureau...and others.

In a future post, I'll share an interview with a consumer who spent two years in a debt elimination program. In the meantime, I’d like to hear from consumers who have been involved in debt elimination. What has your experience been? Please be sure to tell me how long it's been since you enrolled and the specific results or problems you've run into. How much did the program cost you? Where do things stand now?

As for how to legally eliminate your debt...I think you know the answer there, but if you're still not sure, start here.

Gerri Detweiler – Personal finance author, radio host and credit expert. Gerri contributes budgeting, debt recovery and savings information online.

Discover Card Consumer Survey Shows we're Upbeat about our Personal Finances, but…

In May, Discover launched a new research program, the “Discover Consumer Spending Confidence Monitor,” with Rasmussen Reports, a well-known, independent survey research firm. Together, they’re planning to survey lots of us every month – they interviewed 500 consumers daily (15,000 total) in August alone – to find out what we think we’ll spend in the future, what shape our finances are in now, and what our opinions are on the economy.

Granted, our expectations certainly can change unexpectedly for various reasons. However, as time goes on, I think Discover’s monthly surveys will become very insightful for what they tell us about people’s current situation – and what the trends may be. Right now, here’s how I read Discover’s key findings from the May, June and July surveys:

1. No money. The number of families that had no money left over after paying their monthly bills rose from 38% in May … to 50% in July. (There’s only a 1% margin of error.) About 45% of younger adults (18-29) in July reported having money left over after paying their monthly bills.

2. No cushion. Two-thirds in June said they could support their current lifestyle for a month if they were faced with an unexpected loss of income. But 29% in July said they wouldn’t be able to do even that, which is up from a quarter in May.

3. No hope. With credit tight, the housing market soft, gas prices high, and a war going on, it’s no surprise that about 63% in July told Discover that they rated the economy as fair or poor.

If “no money, no cushion, and no hope” is how you’d describe your current situation, as Discover shows, you’re not alone! About half of us – or more – seem to be in the same boat. So don’t beat yourself up about it. Instead, tell us what’s up and we’ll try to steer you to people who can help.

Please note that the August survey was just released (click for details) a few days agao and I haven’t had time to completely digest the numbers yet. However, after a cursory glance, I did find it very interesting that the August survey reveals that consumer confidence in the U.S. economy rose and fell week-to-week. This rise and fall seems to reflect fluctuating concerns about the economy, housing market and sub-prime mortgage challenges.

More importantly, though, despite such fluctuations, consumers were relatively upbeat about their personal finances in August, rating them much higher than they rated the economy. With that, I will end this article on a positive note!

Curtis Arnold - Curtis is the CEO/Founder of CardRatings.com, a website that provides credit card ratings and reviews of over 20,000 offers.

Survey: Medical Debts

Even a simple visit to the doctor can be expensive. And if you're one of the 45 million Americans without health insurance...brace yourself. Medical procedures like MRI's and blood tests can cost into the thousands if you're not covered.

In fact, medical bills are the leading cause of personal bankruptcy filings in the US. Shockingly 75% of those bankruptcy filers had health insurance coverage when they became sick.

If you have a medical debt that you can't afford to pay right away, some health care offices will set up a payment plan, transfer your debt to an outside financial institution or sell the debt to a collections agency. Has this ever happened to you?

Opinion Polls & Market Research

We want to hear your story of dealing with medical debts. If you had health care debt sold or transferred, email us today.

Half of Americans Worry About Their Debt

Here's a scary statistic courtesy of LendingTree: 48% of Americans are uncomfortable with their total amount of household debt.  And 50% of Americans are either concerned or extremely concerned about the amount of credit card debt they have.

Think about that for a minute. Every other adult in the US is seriously worried about their debts. That is an incredible amount of people. The person sitting next to you right now, your co-worker, your friend...that's a national debt issue of epidemic proportions.

And it appears that young families (19-34 with children) are the worst off.  68% of young families are uncomfortable with their debt. 59% spend more than half of their income on debt. 59% don't have any emergency savings. 29% have more than $10,000 in credit card debt.

That's a bleak picture. And it's not surprising that American families are being stretched thin financially. Employee wages haven't kept pace with inflation. Home prices have experienced double-digit increases. Health care spending is growing at the fastest rate in our history.  The availability of easy credit and low interest rates has meant that many consumers turned to debt as a way to manage their daily financial struggles.

What is the solution?  It's tempting to mention that Saturday Night Live skit called "Don't Buy Stuff You Can't Afford." But a house and medical bills are hardly unnecessary expenses. Although there are probably a lot of people who have debt problems due to just living beyond their means, there are also a significant portion who are simply trying to get by. I think that any real debt solution would have to address both sides of the spending story.

The mortgage industry implosion will probably have a big impact on American debt as well. We're going to see fewer and few "non-traditional" loans going to consumers who maybe couldn't afford them in the first place. And if credit card reforms are ever passed by Congress, that could have an impact too. 

What do you think is the solution to America's debt problems? Share your feedback in the comments section below.   

Credit Card Debt? Think Twice Before Jumping on the Debt Settlement Bandwagon!

If credit card bills are piling up and you want a way out, you have got to be tempted by those ads that say:

• "Our debt settlement plan can reduce your debt 55%-70%!"
• "Reduce Your Debt by 60% Debt Settlement Guaranteed!"
• 'Settle your debts & save up to 75% of what you owe"

Sounds great! Where should you sign up?! Not so fast, advises Jim Young, the CEO of  Accelerated Debt Consolidation. According to Jim, debt settlement, or debt negotiation as it is sometimes called, is never a good option for cardholders who are current on their accounts and want to maintain their good credit.

"The only time that a settlement makes sense for a consumer is when they need an account settled in order to obtain a new line of credit. For example, if a consumer that had good credit was attempting to obtain a mortgage but they had an old charged off account on their credit report, settling the charged off account could be what the new lender would need before approving the mortgage."

What They Don’t Say
One of the many things those enticing ads don't point out is that debt settlement can only occur after the accounts are charged off. And if you do choose the settlement option, it will actually prolong the time the charge-off remains on your credit report! For example, say you initially owed $10,000, and a card issuer charged it off. Four years later, a debt settlement firm negotiates a reduced payoff amount of $5,000. Not only will that get the clock ticking on your credit report for another seven years, but as Jim puts it,

"You will pay income taxes on the amount that the creditors let you off the hook on. In other words if a creditor settles a $10,000 debt for $5000, the $5000 is reported as income and you will be taxed on it."

Ouch! In fact, according to law, you would be taxed on any amount forgiven over $600.

Ka-Ching!

These debt settlement firms are often nothing more than telemarketing scam outfits, except that their operators' scripts talk about credit as opposed to some widget. Once someone falls for their sales pitch, they start making money right away, first by collecting a "retainer." They pocket the first few months' payments a consumer is required to send in -- which of course only gets the consumer further into hock and credit trouble … faster. Then these debt settlement outfits make a percent of what they save the cardholder. Here's an example Jim likes to use:

"If the client owes $100,000 and the settlement firm is promising to save them 50% of what they owe, that is a savings of $50,000 and they usually want a commission of 12%. So 12% of $50,000 is $6000."

And you thought the MasterCard or Visa in your pocket had high fees! Seriously, though, as I hope I've made clear, debt settlement has some serious pitfalls. If you are having trouble paying your bills, I urge you to visit the Accelerated Debt Consolidation Web site, and take a look at some other options that might be more appealing to you. Got any horror debt settlement horror stories? Please share them with us!

Curtis Arnold, is the Founder of CardRatings.com, a website that provides ratings and reviews of over 20,000 credit card offers.

Field Report: Hospital Billing Issues

It's ironic that as we work on "Medical Debt" as our theme for May, I am spending a lot of time on the phone with my hospital's billing office.  I recently had some back problems that led to multiple MRI's, an outpatient surgery and a massive amount of medical bills. Even with my good health insurance and slightly neurotic temperament, it is easy to get overwhelmed sorting these charges out.

But there is good news! When I called the hospital today to straighten out one bill, I talked to a representative who was smart and very educated about credit. She had worked in medical collections before and had seen first hand the damage that unpaid or error-ridden bills can have on a patient. We ended up talking about credit for 20 minutes. What a breath of fresh air!

Every single hospital should provide credit and debt education to their billing departments. If a hospital is prepared to send a patient's delinquent $50 co-pay bill to collections, they should be trained about the seven-year impact that the resulting account will have on the patient's credit. Credit-smart billing representatives will be more effective working with patients to find healthy financial solutions and will be more compassionate about debt situations. Every billing representative should know:

• That medical collection records stay on credit reports for 7 years, whether paid or unpaid.
• That medical collection accounts have a major negative impact on credit scores.
• That these collection records can lead to someone not being able to buy a home, get an auto loan, set up utilities, be approved for a credit card or get good rates on insurance.
• That medical collection records are often masked on a consumer's credit report to protect them from discrimination. However, the records still appear and still cause credit score damage.
• How credit scores work and where the patient's credit scores stand.
• If their hospital provides a charity care program and, if they do, who qualifies.
• The basics of the credit reporting.
  
• Resources for patients in need of credit cards or loans and the ability to advise whether or not they will qualify for these products.
• Helpful information for patients with no credit or bad credit. 

If you work in a hospital billing department, contact us! We'd love to teach your staff about credit. In fact, I know the perfect person to teach that class. A few hours of credit education will be good for your team, good for your patients and good for your bottom line.   

Debt is Not Illegal!

A chiropractor I know has over $110,000 in student loan debt incurred to get his professional degree. I’ll call him Bill for purposes of this blog.

Bill is hardworking and smart, but after a few years in the chiropractic field, it was pretty obvious to him that he wasn’t going to make the kind of living he expected, and certainly not the kind of income he would need to pay off that student loan debt and buy things like shelter and groceries. In fact, things got so tough for a while that he filed bankruptcy to discharge credit card debt he couldn't manage. Of course, he couldn't discharge or reduce the student loan debt in bankruptcy.

Since then, he’s been working hard in his new field (which doesn’t require his degree), and he’s looked at many avenues for dealing with the debt. He consolidated to a lower rate, but that was before rates went even lower than his consolidation rate. So he’s stuck – permanently – with that 8% rate. That rate could have been much lower if he waited to consolidate when rates dropped to rock bottom, but he could neither predict future rate drops, or afford to wait.

I want to emphasize that point. You may only be able to consolidate your federal student loans once. Is that insane? Imagine if you could only refinance a $120,000 mortgage once, and otherwise you are stuck with that rate until the loan is paid off!

Finally, Bill was approached by a company that seemed to have the answer to his prayers…a process that would eliminate his student loan debt! The company assured him that over a two-year period they could negotiate to have his debt wiped out.

Bill was pretty excited about the program, but it sounded fishy to me, so I asked Bill to conference me in on the call with the company representative before he forked over any money.

Sure enough, the company salesperson started with an argument that “debt is illegal” and that, since Bill had already paid more than the amount of the debt back, the company could call the student loan holder on its “illegal” practices and have the obligation erased. For this, Bill would pay an upfront fee of $9000!

When Bill asked for references from consumers, the representative explained that this method is hush-hush and clients didn’t really want to be bothered with calls from other consumers. (Actually, I would think that anyone who got that kind of debt erased would be singing the firm’s praises from the rooftops. I know if it worked for Bill he would be happy to recruit a thousand clients to the firm.) When Bill pressed the point, she admitted that the first clients were just starting to finish up that two year process.

Of course, I couldn’t find the company listed with the Better Business Bureau or on the Internet.

Listening to the representative’s lies and excuses got my blood boiling. I cut the sales pitch short and warned her that companies promoting these debt elimination schemes were being shut down by the FTC, FBI and other regulators.

If you are thinking of paying money for “debt elimination,” I want warn you: debt is not illegal. If anything, last week’s Congressional hearings illustrated how truly legal debt is…even when it comes to outrageous interest rates and fees!

The folks promoting debt elimination schemes are the same ones that say you don’t have to pay taxes.

Bill is going to have to pay back his student loans. There is no way out of it. He’ll work hard, he’ll struggle, and he may not be able to put a dime aside for his own children’s educations, as he tries to repay the loan for his. But he is stuck with the debt.

Keep in mind that debt elimination is different than credit counseling or debt negotiation/debt settlement. Unfortunately, when it comes to student loans, those last two options, which can be legitimate, are not available either.

The hearings on credit card practices have created quite a stir. It's going to be time to get things stirred up on the topic of student loans again, as well.

MTV's True Life Documentary Shows the Real Cost of Being in Debt

MTV's True Life special "I'm in Debt" is the financial equivalent of one of those "Blood on the Pavement" driver's ed videos. It's horrifying and should be required viewing for all teenagers.

The three twenty-somethings profiled on the show have already accumulated massive amounts of debt with little or no income available to pay it off:

• Amy (22) has $14,000 in credit card debt and is marginally employed. Debt collectors call her constantly and she still splurges on tanning and shopping.
• Daniel (25) has a $900/month mortgage payment, thousands in credit card debt and is in between jobs.
• Ashley (21) has $20,000 in credit card debt. Her debts have forced her to move back home with her parents and consider bankruptcy.

I wish I could find a clip of this show online; MTV only has a summary and slide show. The real star of the episode is bankruptcy attorney, Russell Simonetta. He takes the time to explain the bankruptcy process to Ashley and the impact it will have on her credit. He even goes so far to talk to her about how bankruptcy could stop her from getting an apartment, loan or job in the future. Hooray for Russell! I hope that there are more sincere and smart bankruptcy attorneys out there like him.

In contrast, the credit counselor Ashley goes to see (as required for bankruptcy filings) tries to sell her on a 41-month debt negotiation plan that will damage her credit extensively and only save her $3,000 in the long run. This scene highlights just how worthless the government mandated credit counseling really can be. Luckily, she chooses bankruptcy instead and seems to have learned some valuable lessons.

The show will air on MTV this Wednesday night (3/7) at 8:00 pm and again on Saturday (3/10) at 9:00 pm. Anyone with teenagers, college students, financially irresponsible relatives or debt problems of their own should tune in. Even better, set your TiVo to record and you'll have the video ready to play anytime you are tempted to overspend.

Collection Agencies and the IRS

The collection industry has been under attack lately. ABC's 20/20 ran a investigative piece on Friday about the seedy world of collections. The upcoming documentary, Maxed Out, has posted a shocking clip showing collectors talking about accessing data and calling customers. And this month, the collection industry is also getting some negative attention from a report by the national taxpayer advocate to Congress.

The collections agency behavior that is driving all this attention is unfortunately nothing new. Private debt collection agencies are notorious for intimidating debtors and defying the consumer protection rules established under the Fair Debt Collection Practices Act. Calling in the middle of the night, threatening consumers making untrue statements about the consequences of not paying debts, I've heard all kinds of horror stories from consumers.

Collection agencies have a surprisingly wide and diverse client list: video stores, gyms, credit card issuers, lenders, landlords, libraries, medical offices and even the IRS. That's right, the federal tax agency can sell your unpaid tax debts to a collection agency. It is a policy that is bad for the consumer and not even profitable for the IRS. According to the national taxpayer advocate, Nina E. Olson, "the IRS collects only about 15 cents on the dollar on tax debts that are two years old and virtually nothing on tax debts that are older than three year."

But there is good news! Based on Ms. Olson's report, the Senate introduced a bill last week that would prohibit the Internal Revenue Service from using private debt collection companies. The bill is called  S.335 and was sponsored by Senator Byron Dorgan from North Dakota, who is my new favorite person of the day.  I can't access the full text of the bill just yet, but stay posted for more updates on this exciting development.

Are you Still Repaying Debts from a Past Relationship?

A press release came out last night reporting that 29% of consumers have incurred debt from a relationship and continued to pay for it after the relationship ended. The release goes on to try to tie this statistic into some financial tips for buying Valentine's Day gifts. I think they are missing the key point that this study reveals.

It's a very unromantic fact, but it is a statistical truth that most relationships end at some point. And whether it was marriage, living together or just dating seriously, there is almost always a financial repercussion. Shared purchases need to be split up, credit cards unjoined, joint savings divvied...as they say, "Breaking up is hard to do."

For example: I had a friend who broke up with her boyfriend of two years and had to launch a serious financial plan as a result. She had helped him buy a car and pay for college while they were together. After they had broken up, he agreed to pay her back $500 a month and she took on the unwanted role of being a "lender" to her ex. Even though she managed to recoup a lot of her money through this repayment plan, she never quite got it all back.

Cupid is probably frowning on me for talking about separating so close to Valentine's Day, but here are some tips to help you if you are breaking up:

• The absolute most important tips is to separate shared accounts so that your credit report is not going to be impacted by your ex in the future. In most cases this involves closing or refinancing joint financial products. Don't forget about credit card authorized users, loan and credit card co-signers and joint banking accounts. Divorce decrees do not officially separate accounts, you have to work with the creditor or lender directly instead.
• If the separation was not amicable, place a 90-day fraud alert on your credit report. Your ex is probably armed with all the personal information needed to launch a revenge-motivated identity theft attack on your credit.
• Be as fair as possible. The end of a relationship comes with some strong emotions. Don't let your animosity toward your ex lead you to demand more than a fair share. The easiest and fairest way to split everything is 50/50. (Of course, if you are getting divorced instead of breaking up there are a whole new set of rules that apply here).
• Crunch the numbers. If your ex owes you money, don't be afraid to follow my friend's example and think like a lender. Try to set up a payment plan using automatic transfers between your ex's bank account and yours.
• Be prepared to not get all your money back. You may be happier just "writing off" some or all of the debt if it means making a clean break from a bad relationship.

Do you have a financial horror story related to breaking up? Or a tip from your own experiences? Share your feedback in the comments section below.

Medical Bills and Credit Card Debt

Those of us in the personal finance world have long understood that medical bills are a major driving factor behind consumer debt issues. I can't even begin to count how many emails I've received from people struggling with debts or considering bankruptcy due to bills related to an injury or illness. Without health insurance, consumers can easily build up $10,000 in debt for a simple visit to the emergency room. Even with health insurance, many consumers face incredible deductibles or costs for even basic medical treatment.

A new study from Demos and the Access Project entitled "Borrowing to Stay Healthy" has revealed new data on just how much medical costs are impacting consumer credit card balances. The report found that:

• Low- and middle-income medically indebted households had higher levels of credit card debt than those without medical debt-on average 46 percent higher. ($11,623 versus $7,964).
• Twenty-nine percent of low- and middle-income households with credit card debt reported that medical expenses contributed to their current balances. Within that group, 69 percent had a major medical expense in the previous three years.

The report also goes on to discuss the issue of medical credit cards and revolving lines of credit. These services are often offered to patients as "financial assistance" by health care providers when, in fact, they usually have higher rates and fees than comparable standard financial products.

The group advises a solution that is very close to my own wishes: a requirement to differentiate medical debts from other types of debts in the credit system. I feel very strongly that new regulations should be passed to reform the way medical bills are sold to collections and included in credit reporting. Under the current system, any size of unpaid medical debt can be sold by a health care provider to a collection agency. The resulting collection record causes significant credit score damage for 7 years; damage that doesn't end when the consumer pays off the debt.

It doesn't make sense that a consumer's credit score would drop dramatically because they are unable to repay exorbitant bills for something like cancer treatment. Struggling to repay unavoidable medical bills is a very different situation in my mind than being unable to repay bills for electronics and other avoidable expenses. And, although creditors and lenders would argue against it, I don't think medical collection accounts are a fair or accurate item to use in credit scoring calculations.

Have you recently faced an expensive medical bill? Did you use credit card or other financial products to manage the debt? Share your feedback and stories in the comments section below.