Welcome to the 3rd installment of the All Things Financial Group. Tonight we will be covering a lot of information, so let's get going.
Please watch the following skit from Saturday Night Live.
As humorous as that clip is, it is really true. Don’t buy stuff you cannot afford, because doing that has gotten us all into debt at some time or another. The only way to dig our way out of debt is to stop buying things we cannot afford.
This is an incredibly difficult lesson for me to teach because you have had your ideas about debt and credit reports for many years. What I may say tonight might challenge your beliefs. It might make you question what it is that you’ve been doing all these years? It can be incredibly difficult to swallow, and by slide number 4 you may want to write-me off completely and put “nutjob” right on my forehead. But I ask you to hear me out, keep an open mind and heart, and then if you want to call me a nutjob on the way home, then you are more than welcome to do that. But for the next hour and a half, just be open to what I’m saying, on the off-chance I might be right.
Fact vs. Fiction
There is a myth floating around out there that everyone has debt, and some debt is good. Well, let’s go ahead and de-bunk that myth.
Dave Ramsey says, "Debt is dumb. Most normal people are just plain broke because they are in debt up to their eyeballs with no hope of help. If you're in debt, then you're a slave, in the sense that you do not have the freedom to use your money to help change your family tree."
Wow, so if you have debt, then you are normal. And most normal people are broke. Following that logic (which is correct by-the-way) then I don’t want to be normal. I want to be weird. We have been referred to as a “peculiar people” so why on earth would we want to be normal when it comes to being broke and in debt up to our eyeballs? It just doesn’t make sense.
Let’s just go ahead and get this out here and now – Debt is not a way to become prosperous. It just isn’t.
But….since we’re here and we have debt, it isn’t going to vanish just because we really want it to – so we’re going to have to work through it.
I now want to de-bunk a series of myths that have been fed to you about debt, that we have bought as truth. If you tell a lie often enough, loud enough, and long enough then eventually it will become accepted as truth. Even though we know deep down that it isn’t true, we will eventually conform and go along with it. That’s just how things work, and these are some of the things that we’ve been told often enough, loud enough, and long enough that we, as a society have accepted them as truths.
Myth 1: Having debt helps you build that FICO score so you can get a mortgage.
Truth: Having credit cards with a 0 balance actually negatively impacts you when buying a home or refinancing a mortgage. This is true because if you have a bunch of credit cards with a $0 balance and then you get a new home, statistically speaking, you will go out and buy all new home furnishings for your new home, and then you will become a liability for not paying your mortgage. Having open lines of credit increases your risk, and especially nowadays, mortgage lenders do not want to see anyone who appears even remotely risky. So keeping those cards open because it builds credit can actually end up hurting you much more in the long run than taking a small ding on your credit report for closing them.
Myth 2: You need a credit card to rent a car.
Truth: Most car rental companies take debit cards, and the ones who don't are too expensive anyway.
Myth 3: You need a credit card to buy things online.
Truth: Visa or Master Card debit cards work just as well and carry the same fraud liability as credit cards. Now I know you’re saying “but I don’t want them tied to my bank account.” Well, since it has the same fraud liability, and the banks (at least the good ones) have some pretty great ways to keep you secure, then you’re pretty safe. Many banks will return the money to your account within 24 hours (and reverse any fees if they were accumulated). Of course, they do conduct an investigation, but if you’re a victim of fraud, you’d have to clear it up anyway. And if your bank doesn't offer this protection, it's time to switch banks.
Myth 4: It's okay to use the credit card as long as I pay it off every month.
Truth: 78% of you won't. And no one pays it off 100% of the time - no matter how disciplined they are. Life happens and gets in the way, and then you just spent money you didn't have to spend.
But…but….but….
I get rewards points, air miles, or cash back bonuses! Seriously have you ever tried to use them? I had a platinum card with a $6500 balance on it. Do you know what I was able to get when I cashed out my points after finding Dave and cutting the card up? A pizza stone and a golf umbrella! $6500 of debt and I got a stupid pizza stone and a golf umbrella! I could have saved myself the $6450 and just bought those stupid things myself.
but....but....but....
Having cash burns a hole in my pocket, so I spend less with a card.
Actually, you spend 12-18% more just because you use plastic, and if you're using plastic at the grocery store, then you can end up spending 40-60% more. If you don’t believe me on this – take $100 to the grocery store and leave the cards at home. I guarantee you will only walk out of there with $100 worth of stuff. If you go in with the intention of spending $100 on plastic, I can almost guarantee that you will walk out of there having spent WELL over that $100. It will happen every time. Don’t believe me? Well, even a seasoned veteran and tightwad like myself went into Walmart on Saturday to do the grocery shopping. I hadn’t gotten cash for our envelopes since it was payday, and sure enough, I spent $104.63 when I only intended to pay $100. Sure $4.63 doesn’t sound like much, but it is 4.5% and I became a statistic.
So what do we learn from all of this?
Credit cards are snakes. If you play with snakes, you will eventually get bitten. Remember Steve Irwin, the Crocodile Hunter? I thought he was a great man, but he played with the most dangerous creatures on the planet, and one ended up killing him. Even fearless Steve couldn’t out maneuver this universal law, so what makes you think that you can do it and not get bitten?
Ways they bite you:
1. Increasing interest rates
2. Lowering limits. Sometimes you don't know it and use the card and go over the limit. Then you get hit with #3.
3. Fees, fees, and more fees.
4. Universal default. If you default on any card, ALL of your credit cards will increase their interest rates.
So, let's talk some more about debt.
Debt is the most aggressively marketed product in our culture today, and to even imagine living without it requires a paradime shift. That means that you have to change the way you look at things completely if you want to live a debt free life. We are inundated with commercials on TV, ads on the internet, credit offers in our mailboxes, and even children’s toys are now equipped with credit cards! Debt is a product and is now part of our culture. When you are an awakened and aware consumer, then you become dangerous. My goal is to give you a paradime shift – a new belief system.
Debt has not always been around. It wasn’t until the 1960’s that it began to be marketed. Just take a moment and think back if you will. We all do family history, so let’s put our knowledge to work. Do you think your great grandparents had debt? Probably not, and here’s why:
Our great grandparents viewed debt as a sin. It wasn't just bad - it was a sin.
Our grandparents borrowed only on a home.
Our parents borrowed only on a few things.
We borrow on EVERYTHING!
Seriously, dental offices have credit cards! You can buy a new puppy on credit at the pet store. It is ridiculous that we can put anything and everything on credit. The only thing we can’t put on credit is tithing, and I’m sad to say that some churches (obviously not of our faith) even allow you to use a credit card to pay your tithes and offerings. Seriously! They do! You can put everything on credit! Wake up people – something is wrong here!
And what makes me laugh is that it hasn’t always been like this – debt is a new phenomenon.
Let’s discuss the history of debt for a moment.
Sears: The 1910 Sears catalog said, "Buying on credit is folly"
James Cash Penny (J.C. Penny): did not allow credit to be used at his stores while he was alive.
Ford Motor: They did not offer credit for 10 years.
Diner's Club: First credit card appeared in 1950.
Bank of America: First bank to offer plastic in 1958. It was called the Bank Americard.
Bank Americard eventually becamse Visa.
Discover: Splintered from Visa in 1986.
Isn’t that interesting? Sears, who reported having about 1 million credit card applications a month at one time said, in their own catalog that buying on credit is folly. Sears makes more money on their credit program, than they do selling merchandise. Don’t get me wrong – I like Sears. We buy some of their tools from yard sales, but doesn’t that just blow your mind about quickly greed fueled this downward spiral of debt?! It's all new, but we are so engrained with it in our culture that we can't imagine life without it. Our government has spent billions of dollars so that people can continue to borrow money.
This is why we need a paradime shift – to stop that downward spiral of debt and to dig our way out. Proverbs 22:7 says, "The rich ruleth over the poor and the borrower is servant to the lender."
When we are in debt, we are servants to our lenders. They set the terms, and we pull out all the stops to meet those terms every month. That isn’t living our lives. If we want to win with money, we have to do what rich people do - and rich people don't borrow money.
Joseph B. Wirthlin said, "Remember this: debt is a form of bondage. It is a financial termite. When we make purchases on credit, they give us only an illusion of prosperity. We think we own things, but the reality is, our things own us.
It’s in the scriptures, prophets and apostles of the Lord have said it and are still saying it. When you are in debt, you are in bondage. You are not free. You are a servant to the lender.
The only way to break those chains that bind you is to pay off your debts and refuse to ever go into debt again. That is how you will win with money.
So what is the secret to winning with money?
Intensity.
Intensity has everything to do with how successful you will be with paying off your debts. Believe me, it is with intensity (through much help from the Lord) that we’ve been able to accomplish what we have in our lives with paying off our debt. $45,000 in 3 ½ years on a $31,000/year income while having 3 children in the process only by intensity.
Read Proverbs 6:1-7
I am going to liken the scriptures unto the Discovery Channel for a moment. We’ve all seen the nature shows where the lovely little gazelles are grazing in the fields, but you know where there are gazelles, there is also a big cat of some sort lurking in the tall grass. Now today, it’s going to be a cheetah – the fastest animal the gazelles could ever encounter. So, the cheetah is lurking and creeping up ever so quietly, and the gazelles are hanging out and eating grass. Well, gazelles have a cheetah detector behind their ears, and one of gazelles stops and looks up because the cheetah detector just went off and he tells his buddies, “Cheetah, guys….there’s a cheetah.” But they don’t run away – not yet. They wait until they see where the cheetah is coming from. Well, the cheetah realizes that he tripped the cheetah alarm so he comes out. You may not know it, but the cheetah can go from 0-45 mph in 4 leaps. So, the gazelles see the cheetah and yell “CHEETAH!!!!!!!!!!!!!!!!!!!!!! and begin running for their lives. They are weaving in and out because they know they can’t outrun the cheetah, and they are weaving in and out with some major intensity. Their very existence depends on them outrunning the cheetah, and only 1 in 18 times with a gazelle get caught by a cheetah.
I tell you this because we need to be those gazelles, and our debtors are the cheetahs in our lives. I think sometimes we forget that. I think sometimes we are having a rough time and we pray “Oh Jesus, I don’t know what to do. Please help me through this Jesus. I promise I won’t be stupid again, Jesus.” And then we go out to check the mail and we get a brand new Visa card and we say, “Thank you Jesus!” Jesus did NOT put that credit card in your mailbox! The correct response would be to take that Visa card and yell CHEETAH!!!!!!!!!!!!!!!!!! and snip that card to a million pieces.
Now these are 6 Steps of Gazelle Intensity. I promise that if you do these, you will become gazelle intense, and you will work your way through your debts faster than you ever thought possible.
1. Avoid the cheetahs, and get rid of the ones that you have. Cut up those credit cards. And as an example to everyone, I cut up the following cards.
Bank of America – you started this mess, so you go first. (snip)
I promise Target, takes cash. (snip)
Life doesn’t take Visa, Visa takes life. (snip)
Oooohhh, Platinum…..(snip) just looks like plastic to me.
Discover a new life – without credit cards (snip)
You cannot serve the Master and Master Card. (snip)
Anyone have any credit cards they want to cut up? Anyone want to perform plastic surgery as their first step towards becoming gazelle intense??
2. Save money (the $1000 emergency fund).
3. Prayer - it really works. You have to include the Lord in this process. Only he can help bring about that mighty change of heart.
4. Sell something. Sell so much your kids think they are next. I know mine sure do.
5. Get a part time job. It's not forever - just to get the cheetahs out of your life.
6. Understand and use the debt snowball.
Wednesday, April 15, 2009
Dumping Debt - part 2
The Debt Snowball
List your debts smallest to largest. That means, smallest balance to largest.
Pay only minimum payments on all but the smallest debt. Every single extra penny goes towards paying off that smallest debt.
Once that debt is gone, take its minimum payment and every extra penny and put it on the next one. Each debt you pay off gives you more "snow" for your snowball, and your monthly payments will get bigger and bigger and bigger.
It works, regardless of how small your snowball is to start out with. Our debt snowball started at $1.50. Yes, it was that pitiful, but it has grown into hundreds of dollars a month in 3 1/2 years. It is amazing how the debt snowball works!
Let's look at an example:
Item Payoff Min Pmt New Pmt
Target $210 $23
Visa 1 $798 $69 $92
Discover $2115 $98 $190
Car 1 $4899 $325 $515
Car 2 $12070 $405 $920
Student
Loans $22070 $425 $1345
I know what you're thinking....."but, but, but...wouldn't it be better to list them in order of highest interest rate? Wouldn't that be proper mathn?"
My response, "Honey, if you were so concerned about the math, you wouldn't be in debt in the first place." Why? Because if you are concerned with math, you'd know that paying interest on debt is stupid.
President J. Ruben Clark, in the 1938 General Conference Report said this about interest, "Interest never sleeps, nor sickens, nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its ways or cross its course, or fail to meet its demands, it crushes you."
So why do it this way?
It changes behavior! Remember that only 20% is math and 80% is behavior. By changing the behavior, you set yourself up to win with money. Working through your debts, making sacrifices, and being intense changes your behavior and the way you look at money.
Recently, I was interviewed for an online article I was featured in and she asked me if I would ever go back to my old ways once we’re completely debt free. After thinking for a moment, I could honestly answer. “No, I know too much, I’ve learned too much, and I’ve changed too much. I woke up and realized that I was living in bondage and that my money, wasn’t my money at all. I owed it to other people, and what I didn’t owe, I gave to others by over spending. Never again will I let that happen.” That is that paradime shift I was talking about earlier.
Another reason we do the debt snowball this way is that it gives you quick victories and instant gratification. It really does give you instant gratification to see these creditors go away forever. Once you knock the first one out and you get to say “goodbye forever” to them, then you will be pumped. You will feel a major rush every time you pay off a debt. If you were to do it any other way, chances are you’d get discouraged because you would not see instant results. When you see instant results, you are more likely to stick with it.
This plan and program has been proven time and time again to work. In the 3 1/2 years we've been doing the Dave Ramsey thing, I've seen so many couples get out of debt. Nearly every week I meet people who are screaming "We're debt FREEEEEE!!!" because they did this program. And one day in the near future (probably mid 2010) we too will be doing our debt free scream, because this plan works!
You may be asking, "But wouldn't debt CONsolidation be a good alternative?" No! And here's why:
Debt CONsolidation is a huge CON. They charge you money to move around the debt. You don't reduce the amount of money owed, you just owe on it longer - and actually you pay more interest since you're paying it over a longer period of time. The major reason to avoid it is that it doesn't change behavior. I have known so many people who consolidated their debts into one "manageable" payment, and their behaviors weren't changed. They felt some false freedom and ended up going further into debt again. So, not only did they have the original amount, they had twice as much as before because of the new debt.
The debt snowball changes behavior, and a behavioral change is necessary if you're going to win with money.
You do need to remember that all of this won't happen overnight. Dave Ramsey said, "I have been broke, I know how scared I felt, and know how fast I wanted to get out of debt. I know how you feel, and I have learned that what really works is unbelievably fierce, focused intensity."
If you make the changes you need to make, you will be amazed at how quickly you can get out of debt. We fully expected to be in debt for the next 30 years of our lives before we woke up and got a clue. It was normal to "always have a car payment" or those "emergency credit cards." But I have been constantly amazed at how much traction you can get in a short amount of time doing the debt snowball. Never would I have thought it would take 4 1/2 - 5 years to pay off 70,000 in debt, without drastically increasing our income. It's a program of intensity and quick victories which lead to winning the war. That's why it works.
List your debts smallest to largest. That means, smallest balance to largest.
Pay only minimum payments on all but the smallest debt. Every single extra penny goes towards paying off that smallest debt.
Once that debt is gone, take its minimum payment and every extra penny and put it on the next one. Each debt you pay off gives you more "snow" for your snowball, and your monthly payments will get bigger and bigger and bigger.
It works, regardless of how small your snowball is to start out with. Our debt snowball started at $1.50. Yes, it was that pitiful, but it has grown into hundreds of dollars a month in 3 1/2 years. It is amazing how the debt snowball works!
Let's look at an example:
Item Payoff Min Pmt New Pmt
Target $210 $23
Visa 1 $798 $69 $92
Discover $2115 $98 $190
Car 1 $4899 $325 $515
Car 2 $12070 $405 $920
Student
Loans $22070 $425 $1345
I know what you're thinking....."but, but, but...wouldn't it be better to list them in order of highest interest rate? Wouldn't that be proper mathn?"
My response, "Honey, if you were so concerned about the math, you wouldn't be in debt in the first place." Why? Because if you are concerned with math, you'd know that paying interest on debt is stupid.
President J. Ruben Clark, in the 1938 General Conference Report said this about interest, "Interest never sleeps, nor sickens, nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation. Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its ways or cross its course, or fail to meet its demands, it crushes you."
So why do it this way?
It changes behavior! Remember that only 20% is math and 80% is behavior. By changing the behavior, you set yourself up to win with money. Working through your debts, making sacrifices, and being intense changes your behavior and the way you look at money.
Recently, I was interviewed for an online article I was featured in and she asked me if I would ever go back to my old ways once we’re completely debt free. After thinking for a moment, I could honestly answer. “No, I know too much, I’ve learned too much, and I’ve changed too much. I woke up and realized that I was living in bondage and that my money, wasn’t my money at all. I owed it to other people, and what I didn’t owe, I gave to others by over spending. Never again will I let that happen.” That is that paradime shift I was talking about earlier.
Another reason we do the debt snowball this way is that it gives you quick victories and instant gratification. It really does give you instant gratification to see these creditors go away forever. Once you knock the first one out and you get to say “goodbye forever” to them, then you will be pumped. You will feel a major rush every time you pay off a debt. If you were to do it any other way, chances are you’d get discouraged because you would not see instant results. When you see instant results, you are more likely to stick with it.
This plan and program has been proven time and time again to work. In the 3 1/2 years we've been doing the Dave Ramsey thing, I've seen so many couples get out of debt. Nearly every week I meet people who are screaming "We're debt FREEEEEE!!!" because they did this program. And one day in the near future (probably mid 2010) we too will be doing our debt free scream, because this plan works!
You may be asking, "But wouldn't debt CONsolidation be a good alternative?" No! And here's why:
Debt CONsolidation is a huge CON. They charge you money to move around the debt. You don't reduce the amount of money owed, you just owe on it longer - and actually you pay more interest since you're paying it over a longer period of time. The major reason to avoid it is that it doesn't change behavior. I have known so many people who consolidated their debts into one "manageable" payment, and their behaviors weren't changed. They felt some false freedom and ended up going further into debt again. So, not only did they have the original amount, they had twice as much as before because of the new debt.
The debt snowball changes behavior, and a behavioral change is necessary if you're going to win with money.
You do need to remember that all of this won't happen overnight. Dave Ramsey said, "I have been broke, I know how scared I felt, and know how fast I wanted to get out of debt. I know how you feel, and I have learned that what really works is unbelievably fierce, focused intensity."
If you make the changes you need to make, you will be amazed at how quickly you can get out of debt. We fully expected to be in debt for the next 30 years of our lives before we woke up and got a clue. It was normal to "always have a car payment" or those "emergency credit cards." But I have been constantly amazed at how much traction you can get in a short amount of time doing the debt snowball. Never would I have thought it would take 4 1/2 - 5 years to pay off 70,000 in debt, without drastically increasing our income. It's a program of intensity and quick victories which lead to winning the war. That's why it works.
Collection Practices
We are switching gears now, and I want everyone to read this. You may feel inclined to skip this section if it doesn't apply to you; however, someone you know may need your help, and by reading this section you can give it to them.
Bill Collectors
Even if you have bill collectors calling you, you are most likely not bankrupt - so get that thought out of your head. You just need to devise a plan on how to deal with it.
The first thing you need to learn when in this situation is that bill collectors are not your friends, and they are not your financial advisors. They are in it for their money, and they will employ many different tactics to try to get it.
I knew someone who was a bill collector by profession. He ended up working his way up to VP over collections at the bank he works at. He could get results and was good at what he did. However, I learned a lot of lessons from him. I learned that they are not your friends and they will say whatever they need to say to get you to pay. Every single night, I’d hear collection stories, and in every single story, he would refer to the person (or people) as “deadbeats.” The newly divorced mom of 3 – deadbeat. The man who just lost his wife to cancer – deadbeat. The husband and wife who both lost their jobs at the same factory – deadbeats. He didn’t care about those people, but he played “financial advisor” to talk them into paying his company. It was toxic and corrosive just to hear the stories and the venom he had for those people, and the bill collector on the other end of your phone is no different. Do not allow them to "befriend" you or to become your "financial advisor" because they are not looking out for you.
Don't get me wrong, there are some good collectors, but many are not. Now when I say some are good it doesn’t mean that they are your friends. It means that they follow the rules, while others don’t. Why wouldn’t they all follow the rules? Well…..it’s a little known fact about the collections world, but the turn-over rate is astonishingly high. The average lower level collector is only on the job for an average of 92 days. That’s not long enough to really learn how to do their jobs much less learn the rules. Because they do not have adequate training or experience, most are ignorant to the federal laws protecting your rights. They are just there to do the job and go home. They do whatever it takes to get their money.
They have a database on you, and they will try many different tactics until they find one that works. When they do, they will log it in the computer, and they'll try that same trick over and over and over again. So let's learn their tactics so we aren't caught off guard.
Their Tactics:
1. Evoke strong emotion (anger or fear): Their goal is to make you very afraid, very angry, very something. If you’re in a bad financial situation, chances are you’re paying stuff intellectually you’re taking care of necessities, and if Master Card wants their money, they know they cannot get to the top of the list with logic. If they make you emotional, then they know they stand a better chance of getting you to bump them up to the top of the list. Some use confusion to evoke strong emotion. They ask you to tell them what’s going on (like they’re your friend) and half-way through your story (when you’re nice and vulnerable) they will scream into the phone, “I don’t care about your sob story – you need to pay your bills!” It takes you so far back that it can’t help but evoke emotion – mostly anger.
In his Financial Peace University course, Dave Ramsey tells a story of a bill collector who called his house and asked his wife, "Why do you stay with a man who doesn't take care of you and pay his bills?" His wife naturally told him this, and he got so mad, so angry, that he ended up paying them. Sure enough, next month rolled around and the guy on the end of the phone said, "Well, Mrs. Ramsey, I'm surprised you're still there." In that time both she and Dave learned their tricks, and she was able to say "You'll get your money when you get it." She didn't let them evoke strong emotion.
2. They call at inopportune times. The most likely time you will get a call is during dinner time – why? Because they know it’s a bad time, and they know that if they call you, then you’ll either agree to get them out of the way, or they will make you so mad that you will end up paying them just to get some peace. Again – evoking strong emotion.
3. They will call at work or at a friend or family member's home. They sometimes will call the homes of your friends and family to ask them how they can get in touch with you. That is in large part to embarrass you because who wants a neighbor to say, “This guy with Visa called about you today so I gave him your number.”
4. Act like they care / help you by being your financial advisor. We already talked about how they are not your friends and they only have their interests in mind.
It is easy to let them get to you, and it’s especially easy to feel like victims after one of their phone calls, but it is important for you to know that You DO Have Rights.
Your Rigths
In 1977, this lovely little law was passed called the Federal Fair Debt Collection Practices Act. This act protects YOU against rogue debt collectors, and we all know that there are some of them out there. So let’s look at just some of your rights. I recommend going home and doing a google search for the Federal Fair Debt Collection Practices Act to get more in depth information, but for tonight, this will give you some basic rights you have.
1. They can only call you between 8 a.m. and 9 p.m. YOUR time, not theirs. That means that if the company is on the West Coast and you’re on Central time, then they, by law, cannot call you after 7 p.m. their time, which is 9 p.m. our time. If they do, then you can tell them that they are violating the Federal Fair Debt Collection Practices Act by not calling you between the hours of 8 a.m. to 9 p.m. – your time. As soon as you say that you’ll get a dial tone.
2. They must stop calling you at work if you reqest that they stop. Many times they will call you at work. They may even threaten to call so much that your boss gets tired of it and fires you. They told a friend of mine that once. You can request that they stop calling you at work, and they have to honor it. The best way to do that is to send them a letter requesting that they no longer contact you at work – certified mail return receipt requested. That way if they do it again, you can say that they are violating the Federal Fair Debt Collection Practices Act by contacting you at work after you requested that they stop, and that someone at their company signed that certified letter on ____ date, so they are no longer in compliance. Again, you’ll probably hear a dial tone.
3. They cannot discuss your account with anyone other than yourself (or co-signer). Often they will threaten to tell your friends, family member, or even employer, but under this law, they cannot disclose any account information to anyone who is not on the debt. Now if you and your husband are both on the account, then they can talk to him about it.
4. By law, they cannot use profane language, threaten you, or berate you. They should conduct their business professionally, but this is the number one violation of most collectors. If you have a rogue debt collector who is verbally abusive you have a couple options – 1. you can inform that collector that under the FFDCPA they cannot verbally abuse you and use profanity, so they are in direct violation of that law by the way they are speaking to you, and then you’ll hear the dial tone. Or 2. you can let them hear the dial tone first. You do NOT have to tolerate that kind of behavior, and you can say something like, “You can call me back when you can be nice” or something along those lines if you wish.
5. They cannot take control of your bank account or paycheck without first suing you. The only exceptions are the IRS and Student Loans that are federally insured. Those are the only two entities that can garnish your wages or extract money from your accounts without first suing you and getting a judgment to do so.
6. They cannot have you arrested. Seriously, many people have had collectors tell them that they will alert the police and tell them that they committed a crime. There was even one story of how a collector told the person’s child that if mommy and daddy didn’t pay their bills, they were going to be locked up for a long time. They cannot do that.
7. They cannot misrepresent the amount of money owed.
8. By law, they must stop contacting you if you send them a cease and desist letter – certified mail, return receipt requested. However, be prepared for them to make the next step, and that is sending you to an attorney. That can be both a good thing and a bad thing. Once an account goes to an attorney, you finally have someone with a brain holding your debt and you can usually work out a reasonable repayment plan. The down-side is that you are going to get attorney fees on top of what you owe, and of course there’s always the whole getting sued thing that isn’t very fun. I certainly do NOT recommend going down this road if it can at all be avoided.
Now that you know that you have rights, it will be easier for you to set your own terms of repayment – not let them dictate how much you pay, knowing full well that if you pay that much you won’t be buying groceries.
Set Your Terms of Repayment
If you (or someone you know) find yourself in collections, the best possible thing you can do is to communicate with them. Call them more than they call you, send them paperwork, go over your budget with them, and work with them on something that is reasonable for you. Let them know ahead of time if you aren’t going to be able to make the payment. Often there is something they can do to skip a payment, reduce payments, etc before you are delinquent. If you cannot work something out, then you need to communicate with them more than they communicate with you. Send them paperwork. Show them your budget, that you got laid off, where you’re money is going, and that you just don’t have it to pay.
Give them a 2 week window. You can set up a stipulation with them that they can call you once every 2 weeks (if you get paid bi-weekly). Explain that your situation isn’t going to change within the next 2 weeks because you get paid and that’s when the stand the most chance of getting some money – when you get paid. If they’d like to call you once every 2 weeks, that’s okay but explain that you will only talk to them once every 2 weeks. If they call within that 2 week window, you can simply say “You are violating our once every 2 week agreement – call back in ___ days.” And hang up. You do not have to talk to them. Do not avoid them, but talk to them on your agreed upon terms.
Realize that your credit report will be shot, and that’s okay. You just worry about getting from point A to point B and sorting this all out in time. You have to realize that if you cannot pay your bills, you cannot worry about your credit report.
Send them what you can, when you can. If you can’t make an entire payment, send them what you can. I have yet to find a company that won’t take your money when you send it to them. There is a great solution to paying your creditors what you can – and that is called:
The Pro Rata Plan
The Pro Rata plan works like this. After you’ve paid the necessities – tithing, shelter, food, utilities, and reasonable transportation, and you find that you are unable to make the minimum payments, and you are doing ALL you can….then you need to add up your debts. Let’s say that you have 3 debts that you can’t make all the minimums for. 1 is for $3,000, another is for $5,000 and the other for $2,000. So, that’s 10,000 total.
Next, you figure out how much “disposable income” you have. This is what you have left over after you have paid the things I listed above. Let’s just say that you have $200 of disposable income.
Then, you take each debt as a percentage of the whole. In our example, the debt that is $5,000 is 50% of your total debt, so they get 50% of your disposable income as payment. The debt for $3,000 is 30% of your total debt, so they get 30% of your disposable income, and the same goes for the debt of $2,000….it’s 20% so they only get 20% of your disposable income.
That would mean that you’d pay $100 to the $5,000 debt, $60 to the $3,000 debt, and $40 to the $2,000 debt. Yes, your creditors will all kick and scream and throw a tantrum because you aren’t paying the full amount, but you can show them (again, communicate and provide documentation) that you are giving them their fair share of your disposable income. They are equally as important as your other debts, so you are giving them their fair share. You are doing all you can, and that is all you can do.
This will keep you from being sued 99% of the time. It messes with their system when you do this. It doesn’t know to send you off to the attorney when you’re paying something, so that's why it works and is effective of keeping you floating along until you can work out a long-term solution to this problem.
Bill Collectors
Even if you have bill collectors calling you, you are most likely not bankrupt - so get that thought out of your head. You just need to devise a plan on how to deal with it.
The first thing you need to learn when in this situation is that bill collectors are not your friends, and they are not your financial advisors. They are in it for their money, and they will employ many different tactics to try to get it.
I knew someone who was a bill collector by profession. He ended up working his way up to VP over collections at the bank he works at. He could get results and was good at what he did. However, I learned a lot of lessons from him. I learned that they are not your friends and they will say whatever they need to say to get you to pay. Every single night, I’d hear collection stories, and in every single story, he would refer to the person (or people) as “deadbeats.” The newly divorced mom of 3 – deadbeat. The man who just lost his wife to cancer – deadbeat. The husband and wife who both lost their jobs at the same factory – deadbeats. He didn’t care about those people, but he played “financial advisor” to talk them into paying his company. It was toxic and corrosive just to hear the stories and the venom he had for those people, and the bill collector on the other end of your phone is no different. Do not allow them to "befriend" you or to become your "financial advisor" because they are not looking out for you.
Don't get me wrong, there are some good collectors, but many are not. Now when I say some are good it doesn’t mean that they are your friends. It means that they follow the rules, while others don’t. Why wouldn’t they all follow the rules? Well…..it’s a little known fact about the collections world, but the turn-over rate is astonishingly high. The average lower level collector is only on the job for an average of 92 days. That’s not long enough to really learn how to do their jobs much less learn the rules. Because they do not have adequate training or experience, most are ignorant to the federal laws protecting your rights. They are just there to do the job and go home. They do whatever it takes to get their money.
They have a database on you, and they will try many different tactics until they find one that works. When they do, they will log it in the computer, and they'll try that same trick over and over and over again. So let's learn their tactics so we aren't caught off guard.
Their Tactics:
1. Evoke strong emotion (anger or fear): Their goal is to make you very afraid, very angry, very something. If you’re in a bad financial situation, chances are you’re paying stuff intellectually you’re taking care of necessities, and if Master Card wants their money, they know they cannot get to the top of the list with logic. If they make you emotional, then they know they stand a better chance of getting you to bump them up to the top of the list. Some use confusion to evoke strong emotion. They ask you to tell them what’s going on (like they’re your friend) and half-way through your story (when you’re nice and vulnerable) they will scream into the phone, “I don’t care about your sob story – you need to pay your bills!” It takes you so far back that it can’t help but evoke emotion – mostly anger.
In his Financial Peace University course, Dave Ramsey tells a story of a bill collector who called his house and asked his wife, "Why do you stay with a man who doesn't take care of you and pay his bills?" His wife naturally told him this, and he got so mad, so angry, that he ended up paying them. Sure enough, next month rolled around and the guy on the end of the phone said, "Well, Mrs. Ramsey, I'm surprised you're still there." In that time both she and Dave learned their tricks, and she was able to say "You'll get your money when you get it." She didn't let them evoke strong emotion.
2. They call at inopportune times. The most likely time you will get a call is during dinner time – why? Because they know it’s a bad time, and they know that if they call you, then you’ll either agree to get them out of the way, or they will make you so mad that you will end up paying them just to get some peace. Again – evoking strong emotion.
3. They will call at work or at a friend or family member's home. They sometimes will call the homes of your friends and family to ask them how they can get in touch with you. That is in large part to embarrass you because who wants a neighbor to say, “This guy with Visa called about you today so I gave him your number.”
4. Act like they care / help you by being your financial advisor. We already talked about how they are not your friends and they only have their interests in mind.
It is easy to let them get to you, and it’s especially easy to feel like victims after one of their phone calls, but it is important for you to know that You DO Have Rights.
Your Rigths
In 1977, this lovely little law was passed called the Federal Fair Debt Collection Practices Act. This act protects YOU against rogue debt collectors, and we all know that there are some of them out there. So let’s look at just some of your rights. I recommend going home and doing a google search for the Federal Fair Debt Collection Practices Act to get more in depth information, but for tonight, this will give you some basic rights you have.
1. They can only call you between 8 a.m. and 9 p.m. YOUR time, not theirs. That means that if the company is on the West Coast and you’re on Central time, then they, by law, cannot call you after 7 p.m. their time, which is 9 p.m. our time. If they do, then you can tell them that they are violating the Federal Fair Debt Collection Practices Act by not calling you between the hours of 8 a.m. to 9 p.m. – your time. As soon as you say that you’ll get a dial tone.
2. They must stop calling you at work if you reqest that they stop. Many times they will call you at work. They may even threaten to call so much that your boss gets tired of it and fires you. They told a friend of mine that once. You can request that they stop calling you at work, and they have to honor it. The best way to do that is to send them a letter requesting that they no longer contact you at work – certified mail return receipt requested. That way if they do it again, you can say that they are violating the Federal Fair Debt Collection Practices Act by contacting you at work after you requested that they stop, and that someone at their company signed that certified letter on ____ date, so they are no longer in compliance. Again, you’ll probably hear a dial tone.
3. They cannot discuss your account with anyone other than yourself (or co-signer). Often they will threaten to tell your friends, family member, or even employer, but under this law, they cannot disclose any account information to anyone who is not on the debt. Now if you and your husband are both on the account, then they can talk to him about it.
4. By law, they cannot use profane language, threaten you, or berate you. They should conduct their business professionally, but this is the number one violation of most collectors. If you have a rogue debt collector who is verbally abusive you have a couple options – 1. you can inform that collector that under the FFDCPA they cannot verbally abuse you and use profanity, so they are in direct violation of that law by the way they are speaking to you, and then you’ll hear the dial tone. Or 2. you can let them hear the dial tone first. You do NOT have to tolerate that kind of behavior, and you can say something like, “You can call me back when you can be nice” or something along those lines if you wish.
5. They cannot take control of your bank account or paycheck without first suing you. The only exceptions are the IRS and Student Loans that are federally insured. Those are the only two entities that can garnish your wages or extract money from your accounts without first suing you and getting a judgment to do so.
6. They cannot have you arrested. Seriously, many people have had collectors tell them that they will alert the police and tell them that they committed a crime. There was even one story of how a collector told the person’s child that if mommy and daddy didn’t pay their bills, they were going to be locked up for a long time. They cannot do that.
7. They cannot misrepresent the amount of money owed.
8. By law, they must stop contacting you if you send them a cease and desist letter – certified mail, return receipt requested. However, be prepared for them to make the next step, and that is sending you to an attorney. That can be both a good thing and a bad thing. Once an account goes to an attorney, you finally have someone with a brain holding your debt and you can usually work out a reasonable repayment plan. The down-side is that you are going to get attorney fees on top of what you owe, and of course there’s always the whole getting sued thing that isn’t very fun. I certainly do NOT recommend going down this road if it can at all be avoided.
Now that you know that you have rights, it will be easier for you to set your own terms of repayment – not let them dictate how much you pay, knowing full well that if you pay that much you won’t be buying groceries.
Set Your Terms of Repayment
If you (or someone you know) find yourself in collections, the best possible thing you can do is to communicate with them. Call them more than they call you, send them paperwork, go over your budget with them, and work with them on something that is reasonable for you. Let them know ahead of time if you aren’t going to be able to make the payment. Often there is something they can do to skip a payment, reduce payments, etc before you are delinquent. If you cannot work something out, then you need to communicate with them more than they communicate with you. Send them paperwork. Show them your budget, that you got laid off, where you’re money is going, and that you just don’t have it to pay.
Give them a 2 week window. You can set up a stipulation with them that they can call you once every 2 weeks (if you get paid bi-weekly). Explain that your situation isn’t going to change within the next 2 weeks because you get paid and that’s when the stand the most chance of getting some money – when you get paid. If they’d like to call you once every 2 weeks, that’s okay but explain that you will only talk to them once every 2 weeks. If they call within that 2 week window, you can simply say “You are violating our once every 2 week agreement – call back in ___ days.” And hang up. You do not have to talk to them. Do not avoid them, but talk to them on your agreed upon terms.
Realize that your credit report will be shot, and that’s okay. You just worry about getting from point A to point B and sorting this all out in time. You have to realize that if you cannot pay your bills, you cannot worry about your credit report.
Send them what you can, when you can. If you can’t make an entire payment, send them what you can. I have yet to find a company that won’t take your money when you send it to them. There is a great solution to paying your creditors what you can – and that is called:
The Pro Rata Plan
The Pro Rata plan works like this. After you’ve paid the necessities – tithing, shelter, food, utilities, and reasonable transportation, and you find that you are unable to make the minimum payments, and you are doing ALL you can….then you need to add up your debts. Let’s say that you have 3 debts that you can’t make all the minimums for. 1 is for $3,000, another is for $5,000 and the other for $2,000. So, that’s 10,000 total.
Next, you figure out how much “disposable income” you have. This is what you have left over after you have paid the things I listed above. Let’s just say that you have $200 of disposable income.
Then, you take each debt as a percentage of the whole. In our example, the debt that is $5,000 is 50% of your total debt, so they get 50% of your disposable income as payment. The debt for $3,000 is 30% of your total debt, so they get 30% of your disposable income, and the same goes for the debt of $2,000….it’s 20% so they only get 20% of your disposable income.
That would mean that you’d pay $100 to the $5,000 debt, $60 to the $3,000 debt, and $40 to the $2,000 debt. Yes, your creditors will all kick and scream and throw a tantrum because you aren’t paying the full amount, but you can show them (again, communicate and provide documentation) that you are giving them their fair share of your disposable income. They are equally as important as your other debts, so you are giving them their fair share. You are doing all you can, and that is all you can do.
This will keep you from being sued 99% of the time. It messes with their system when you do this. It doesn’t know to send you off to the attorney when you’re paying something, so that's why it works and is effective of keeping you floating along until you can work out a long-term solution to this problem.
Credit Bureaus & Credit Reports
Now since we’ve mentioned the credit reporting business, let’s talk about the Credit Bureaus. There are 3: Experian, TransUnion, and Equifax.
They all do pretty much the same thing, but you can have discrepancies between the 3 bureaus. Not all credit reports are created equal. Infact, 70% of you probably have errors on your credit reports. They may be minor errors, such as a wrong address, or they can be major errors like accounts you have no idea are there.
You are entitled to one free annual credit report from each bureau per year. You can do this by going to www.annualcreditreport.com. All of the other companies you hear about offering free credit reports make you enroll in their program in order to get it, so avoid them. This one really is free - without a program to join. The only thing to remember is that this will not give you your credit score (or FICO score). You can pay a small fee to get that, but for your purposes it isn't necessary to have to get it. We are just looking at what's on the reports - not so much what the score is.
And what is a FICO score? The Fair Issac Company Score (FICO)tells prospective lenders how well you manage your debt. Essentially, it is an "I love debt" score. Many people (even financial "professionals" will tell you how important it is to keep that FICO score up, but in the ever-constant persuit of that all mighty FICO score, many people have come to financial ruin. And for what? Something that doesn't matter in the long-run. You do not have to have a FICO score to survive. You do not even have to have one to get a mortgage. Yes, it is another myth that we’ve been fed so often, loud and long that we take it to be truth. So many people run themselves into the ground trying to attain that all-powerful FICO score, when really….it is something we can all live without.
Many rich people, who are debt free, do not even have a FICO score. Why? Because they don’t borrow money. Even without being wealthy, you can get a home mortgage without a FICO score. It’s called manual underwriting, and if you SHOULD get a home, you CAN get a home. See me if you want more information on this.
Now you may be asking, "Well, if we shouldn't care about your FICO score, then why bother checking our credit reports?" The number one reason to stay on top of your credit report is to make sure that you aren't a victim of identity theft. That is the number one crime in America today, so it is vitally important to make sure that you aren't numbered among the victims. Another important reason to check the credit reports is to make sure that the information on your accounts is reported correctly. Wouldn't it be a bummer to get a call 3 years down the road saying you owe, $5,000 (due to some computer glitch) and it could have been fixed by checking your report when the information was current? It's just one more way to stay on top of your financial situation. For some, you may be able to find out who you owe money to, and how much. That's another good reason to check these things.
So, let’s talk about our credit reports.
Information remains on your credit report for 7 years from the date of last activity. This means that if you have a 5 year old account and then a new collections agency comes along and picks it up and calls you and ends up reporting it to the bureaus again – the clock starts all over at day 1. Sometimes things will fall off, but most of the time they just keep coming back because they are set to be bumped back up.
Places that offer to clean up your credit report or remove the bad stuff from them are SCAMS! Stay away from these places as you would the plague. It is easy to clean up your own credit report for FREE, and no one can remove negative stuff that is correctly reported.
The only way to get rid of the bad stuff is to pay those debts off. If you have old accounts that are sleeping because they are so old, my suggestion (and Dave’s too) is that you take care of your current debts (the ones that are bothering you now) in your debt snowball, and then have a second debt snowball to take care of paying off the sleeping ones. Just wake one at a time and make some settlement offers.
Settlement Offers
The very first thing to remember is Get It In Writing! If you do not get it in writing, you do not have a deal. If you are talking to Bob on the phone and he agrees that you can pay them $3,000 for a $7,000 debt as payment in full, and you don’t get it in writing. Guess what. You still owe the other $4,000 because either Bob will conveniently have amnesia or he will “no longer work there” and there’s no record of that agreement. So if you’re offering a big chunk of money as settlement for the debt, then you need to get it in writing on company letterhead before you send them a single solitary dime. And NEVER give them your bank account information or post dated checks. NEVER.
Next, you need to understand that when you settle a debt, it is a gray mark on your credit report. A black mark is where you don’t pay it at all. A white mark is where you pay it in full, and so a gray mark isn’t great, but it isn’t as bad as it could be.
Now I want you all to hear this. Do not settle your debts if you have the money to pay them. This is where integrity comes in. You have to be honest and moral when it comes to finances or you will not win. If you have old debt that you have the money to pay (or it won’t be impossible to pull the money together over time to pay it off) then you need to pay it in full. Maybe knock off some outrageous fees, but at least pay what you legitimately owe. Now if you are struggling and come into a couple hundred bucks to settle a debt, then go ahead and do that.
The final thing to remember is that if you get a settlement (in writing) and the company writes off the difference, you will get a 10-99 form come tax time, and you must claim the difference that they wrote off as unearned income. So, if you saved yourself $3,000 by settling an old debt, then you have to claim that $3,000 as income and you will have to pay taxes on that. Of course, paying taxes on $3,000 is much less than paying $3,000, so you still come out on top, but just be aware that you HAVE to claim it
Clearing Up Inaccurate Information
Now if you have inaccurate information (and 70% of you do), then you can get that cleaned up pretty easily. Here’s how:
1. Send them a letter requesting that the account in question be proven accurate. Make sure the letter is sent certified letter, return receipt requested. That way you know exactly when the clock starts ticking for them to get this taken care of. They have 30 days to get the information from the creditor to back up the information on the report.
If it is a mistake, it will be corrected (or possibly removed entirely).
2 If there is something wrong on the creditor’s end, then you need to speak with them to resolve the issue. Once it has been resolved, and if it is resolved in your favor, you need to request that they update this information with the 3 credit bureaus. It is then helpful to follow up in 30 days with the credit bureaus to make sure that they actually did what they were supposed to do. If you have a feeling that it is an error on the creditor’s part, then contact the creditor to hash out the details BEFORE you contact the credit bureaus to fix something. That way, you only have to deal with them once.
3. If the creditor has not responded within 30 days, the entire account will be removed from your report. They will remove accounts that they cannot verify. I had a very old joint Home Depot account. I was removed several years ago from the account, and a couple months later, the card holder was late on a payment. It dinged my credit report and it showed that it was an open account. It took me 5 calls to Home Depot credit services to get it fixed. Because I was no longer on the account, they couldn’t tell me anything about the account. If you find yourself in this situation, my suggestion is to call the creditor and ask them to pull up any information they have on you based on social security number. If they do not have your social security number in the system, then that means you owe them nothing and are not one of their customers. Because I worked through that, when the credit bureaus tried to verify the information, it showed as an invalid account and was removed entirely from my credit report. It may not happen like that all the time, but even a slight mistake like that is something to dispute.
Now if the debt is legitimately yours and if the creditor just didn’t respond in enough time, then it can come back if the creditor reports it again. Sometimes things will be removed and then re-reported and end up back where it was. So it’s always a good thing to do all of your follow up.
Opt Out
One great feature with credit reports and credit bureaus is that you can now opt out of pre-screened offers. You know, all that junk mail that fills your mailbox….it can all be gone. By calling 1-888-567-8688 (1-888-5OPTOUT), you can have your name removed from pre-screened offers for insurance and credit. This is good for 2 years.
To permanately opt out, send a letter to each credit bureau, requesting to be premanently removed from pre-screened offer lists, and they will never bother you again. I highly suggest doing this - especially since we're all planning on living a debr free life. A life without chains.
.
They all do pretty much the same thing, but you can have discrepancies between the 3 bureaus. Not all credit reports are created equal. Infact, 70% of you probably have errors on your credit reports. They may be minor errors, such as a wrong address, or they can be major errors like accounts you have no idea are there.
You are entitled to one free annual credit report from each bureau per year. You can do this by going to www.annualcreditreport.com. All of the other companies you hear about offering free credit reports make you enroll in their program in order to get it, so avoid them. This one really is free - without a program to join. The only thing to remember is that this will not give you your credit score (or FICO score). You can pay a small fee to get that, but for your purposes it isn't necessary to have to get it. We are just looking at what's on the reports - not so much what the score is.
And what is a FICO score? The Fair Issac Company Score (FICO)tells prospective lenders how well you manage your debt. Essentially, it is an "I love debt" score. Many people (even financial "professionals" will tell you how important it is to keep that FICO score up, but in the ever-constant persuit of that all mighty FICO score, many people have come to financial ruin. And for what? Something that doesn't matter in the long-run. You do not have to have a FICO score to survive. You do not even have to have one to get a mortgage. Yes, it is another myth that we’ve been fed so often, loud and long that we take it to be truth. So many people run themselves into the ground trying to attain that all-powerful FICO score, when really….it is something we can all live without.
Many rich people, who are debt free, do not even have a FICO score. Why? Because they don’t borrow money. Even without being wealthy, you can get a home mortgage without a FICO score. It’s called manual underwriting, and if you SHOULD get a home, you CAN get a home. See me if you want more information on this.
Now you may be asking, "Well, if we shouldn't care about your FICO score, then why bother checking our credit reports?" The number one reason to stay on top of your credit report is to make sure that you aren't a victim of identity theft. That is the number one crime in America today, so it is vitally important to make sure that you aren't numbered among the victims. Another important reason to check the credit reports is to make sure that the information on your accounts is reported correctly. Wouldn't it be a bummer to get a call 3 years down the road saying you owe, $5,000 (due to some computer glitch) and it could have been fixed by checking your report when the information was current? It's just one more way to stay on top of your financial situation. For some, you may be able to find out who you owe money to, and how much. That's another good reason to check these things.
So, let’s talk about our credit reports.
Information remains on your credit report for 7 years from the date of last activity. This means that if you have a 5 year old account and then a new collections agency comes along and picks it up and calls you and ends up reporting it to the bureaus again – the clock starts all over at day 1. Sometimes things will fall off, but most of the time they just keep coming back because they are set to be bumped back up.
Places that offer to clean up your credit report or remove the bad stuff from them are SCAMS! Stay away from these places as you would the plague. It is easy to clean up your own credit report for FREE, and no one can remove negative stuff that is correctly reported.
The only way to get rid of the bad stuff is to pay those debts off. If you have old accounts that are sleeping because they are so old, my suggestion (and Dave’s too) is that you take care of your current debts (the ones that are bothering you now) in your debt snowball, and then have a second debt snowball to take care of paying off the sleeping ones. Just wake one at a time and make some settlement offers.
Settlement Offers
The very first thing to remember is Get It In Writing! If you do not get it in writing, you do not have a deal. If you are talking to Bob on the phone and he agrees that you can pay them $3,000 for a $7,000 debt as payment in full, and you don’t get it in writing. Guess what. You still owe the other $4,000 because either Bob will conveniently have amnesia or he will “no longer work there” and there’s no record of that agreement. So if you’re offering a big chunk of money as settlement for the debt, then you need to get it in writing on company letterhead before you send them a single solitary dime. And NEVER give them your bank account information or post dated checks. NEVER.
Next, you need to understand that when you settle a debt, it is a gray mark on your credit report. A black mark is where you don’t pay it at all. A white mark is where you pay it in full, and so a gray mark isn’t great, but it isn’t as bad as it could be.
Now I want you all to hear this. Do not settle your debts if you have the money to pay them. This is where integrity comes in. You have to be honest and moral when it comes to finances or you will not win. If you have old debt that you have the money to pay (or it won’t be impossible to pull the money together over time to pay it off) then you need to pay it in full. Maybe knock off some outrageous fees, but at least pay what you legitimately owe. Now if you are struggling and come into a couple hundred bucks to settle a debt, then go ahead and do that.
The final thing to remember is that if you get a settlement (in writing) and the company writes off the difference, you will get a 10-99 form come tax time, and you must claim the difference that they wrote off as unearned income. So, if you saved yourself $3,000 by settling an old debt, then you have to claim that $3,000 as income and you will have to pay taxes on that. Of course, paying taxes on $3,000 is much less than paying $3,000, so you still come out on top, but just be aware that you HAVE to claim it
Clearing Up Inaccurate Information
Now if you have inaccurate information (and 70% of you do), then you can get that cleaned up pretty easily. Here’s how:
1. Send them a letter requesting that the account in question be proven accurate. Make sure the letter is sent certified letter, return receipt requested. That way you know exactly when the clock starts ticking for them to get this taken care of. They have 30 days to get the information from the creditor to back up the information on the report.
If it is a mistake, it will be corrected (or possibly removed entirely).
2 If there is something wrong on the creditor’s end, then you need to speak with them to resolve the issue. Once it has been resolved, and if it is resolved in your favor, you need to request that they update this information with the 3 credit bureaus. It is then helpful to follow up in 30 days with the credit bureaus to make sure that they actually did what they were supposed to do. If you have a feeling that it is an error on the creditor’s part, then contact the creditor to hash out the details BEFORE you contact the credit bureaus to fix something. That way, you only have to deal with them once.
3. If the creditor has not responded within 30 days, the entire account will be removed from your report. They will remove accounts that they cannot verify. I had a very old joint Home Depot account. I was removed several years ago from the account, and a couple months later, the card holder was late on a payment. It dinged my credit report and it showed that it was an open account. It took me 5 calls to Home Depot credit services to get it fixed. Because I was no longer on the account, they couldn’t tell me anything about the account. If you find yourself in this situation, my suggestion is to call the creditor and ask them to pull up any information they have on you based on social security number. If they do not have your social security number in the system, then that means you owe them nothing and are not one of their customers. Because I worked through that, when the credit bureaus tried to verify the information, it showed as an invalid account and was removed entirely from my credit report. It may not happen like that all the time, but even a slight mistake like that is something to dispute.
Now if the debt is legitimately yours and if the creditor just didn’t respond in enough time, then it can come back if the creditor reports it again. Sometimes things will be removed and then re-reported and end up back where it was. So it’s always a good thing to do all of your follow up.
Opt Out
One great feature with credit reports and credit bureaus is that you can now opt out of pre-screened offers. You know, all that junk mail that fills your mailbox….it can all be gone. By calling 1-888-567-8688 (1-888-5OPTOUT), you can have your name removed from pre-screened offers for insurance and credit. This is good for 2 years.
To permanately opt out, send a letter to each credit bureau, requesting to be premanently removed from pre-screened offer lists, and they will never bother you again. I highly suggest doing this - especially since we're all planning on living a debr free life. A life without chains.
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Thursday, February 26, 2009
Relating With Money
Welcome to the second session of the All Things Financial Group. If you missed our last class, it can be found on our group website. I highly suggest going through it with your spouse because it’s the basic foundation for the rest of these classes.
So, let’s make sense of your dollars and cents…
Today one of the things we’ll be talking about is Relating With Money. If you had a Budget Committee Meeting then you have probably realized by now that you really need this lesson. The first few Budget Committee Meetings are usually not very cordial – feelings get hurt, people get bored, people get huffy and puffy. It happens. Which is why this is lesson #2 – to help us realize how to relate to each other with money so that we don’t have those issues come up.
The first thing to remember when dealing with money is that "Personal Finance is 80% behavior and only 20% head-knowledge." (Dave Ramsey). That’s right, 80% is what YOU and YOUR SPOUSE do with money, the other 20% is about the math behind the money. 80% of your financial situation rests solely on how you both have behaved with money in the past.
The second thing you need to remember when dealing with money is that Relationships and money mess with each other. Good marriages can go bad with money issues. Bad marriages get worse with money issues. Good marriages get stronger when there aren’t money issues. Bad marriages can get stronger when there aren’t money issues standing in the way. We all know that the #1 cause of divorce is money fights and money problems – why is that? Because money, or the lack of it, impacts how we feel about ourselves and how we feel about our relationships. Now it’s not money’s fault – remember how we talked about money being amoral last month? So it’s not money’s fault – it is the people who control it’s fault. Remember 80% is behavior.
The flow of money represents the value system that the family is operating under. Where and how you spend money tells me who you are. There was a cute little poem from David O. McKay that says,
If you don’t, this financial stuff will mess with your marriage. And if being different and processing financial issues differently wasn’t bad enough...
It is important to put the needs of the family (or of your spouse) above your own desires. Remember what we talked about earlier. For women, the greatest thing you can do for them financially is to get an emergency fund together. It gives them peace of mind.
So, let’s make sense of your dollars and cents…
Today one of the things we’ll be talking about is Relating With Money. If you had a Budget Committee Meeting then you have probably realized by now that you really need this lesson. The first few Budget Committee Meetings are usually not very cordial – feelings get hurt, people get bored, people get huffy and puffy. It happens. Which is why this is lesson #2 – to help us realize how to relate to each other with money so that we don’t have those issues come up.
The first thing to remember when dealing with money is that "Personal Finance is 80% behavior and only 20% head-knowledge." (Dave Ramsey). That’s right, 80% is what YOU and YOUR SPOUSE do with money, the other 20% is about the math behind the money. 80% of your financial situation rests solely on how you both have behaved with money in the past.
The second thing you need to remember when dealing with money is that Relationships and money mess with each other. Good marriages can go bad with money issues. Bad marriages get worse with money issues. Good marriages get stronger when there aren’t money issues. Bad marriages can get stronger when there aren’t money issues standing in the way. We all know that the #1 cause of divorce is money fights and money problems – why is that? Because money, or the lack of it, impacts how we feel about ourselves and how we feel about our relationships. Now it’s not money’s fault – remember how we talked about money being amoral last month? So it’s not money’s fault – it is the people who control it’s fault. Remember 80% is behavior.
The flow of money represents the value system that the family is operating under. Where and how you spend money tells me who you are. There was a cute little poem from David O. McKay that says,
You tell on yourself by the friends you seek,
By the very manner in which you speak,
By the way you employ your leisure time,
By the use you make of dollar and dime;
You tell what you are by the things you wear,
And even the way you wear your hair,
By the kind of things of which you laugh,
By the records you play on your phonograph;
You tell what you are by the way you walk,
By the things of which you like to talk,
By the manner in which you bury deceit,
By so simple a thing as how you eat,
By the books you choose from the well-filled shelf;
In these ways and more you tell on yourself.
By the use you make of dollar and dime. What are we saying to people when we are constantly buying newer, bigger, better things? What are we saying when we are not content with the things we have? It's possible that we're telling them that we're not content with what we have, or that we're more concerned with bigger better things than what is really important in life. Are we telling on ourselves? Are our actions saying what we want them to be saying? What do our spending habits say to our spouses? It might not be what we think.
By the very manner in which you speak,
By the way you employ your leisure time,
By the use you make of dollar and dime;
You tell what you are by the things you wear,
And even the way you wear your hair,
By the kind of things of which you laugh,
By the records you play on your phonograph;
You tell what you are by the way you walk,
By the things of which you like to talk,
By the manner in which you bury deceit,
By so simple a thing as how you eat,
By the books you choose from the well-filled shelf;
In these ways and more you tell on yourself.
By the use you make of dollar and dime. What are we saying to people when we are constantly buying newer, bigger, better things? What are we saying when we are not content with the things we have? It's possible that we're telling them that we're not content with what we have, or that we're more concerned with bigger better things than what is really important in life. Are we telling on ourselves? Are our actions saying what we want them to be saying? What do our spending habits say to our spouses? It might not be what we think.
There's one major thing to remember when it comes to relating with money, and that is that men and women are different. Wow...what a news flash. We all know that we are, but there are a couple differences that are noteworthy for tonight's purposes.
Men Love to share facts. Women love to express feelings. That is inherently evident with almost every single fight I’ve ever had with a man. He gives facts, and I want to talk about how I feel. It’s not bad to feel – in fact, it is a good thing (women’s intuition); however, we need to remember that our husbands do not process feelings unless there are facts behind them.
Men connect by doing things. Women connect by talking. This is evident if your husband would rather clean the dishes for you than talk to you about feelings. Men are do-ers. They don’t want to debate possibilities, they want to leave the cave, kill something, and bring it home.
Men tend to be independent. Women tend to be interdependent. When dealing with money, men want to do it themselves, be the big, tough guys to handle it. Women want to work together.
In Men Are From Mars, Women Are From Venus, John Gray states that, "Men define themselves on their ability to achieve results. Women define themselves by the quality of their relationships." I think this is so very important to remember when dealing with money. Men want to see results. That’s what they want. They want facts, they want numbers, they want to see what the results are going to be and take the fastest route from point A to point B. If they feel that they cannot somehow be effective at achieving results, then they feel a sense of failure.
Women, we define ourselves by the quality of our relationships. If our husband is upset about the money and it’s affecting your relationship (which it will) then you will feel a sense of failure. You will begin feeling some issues with your self-worth.
We need to realize what is at play behind every situation and realize that this is just how we’re hardwired. It’s not fun, but we have to deal with it. We have to look beyond the surface and see what is really there.
Women, we define ourselves by the quality of our relationships. If our husband is upset about the money and it’s affecting your relationship (which it will) then you will feel a sense of failure. You will begin feeling some issues with your self-worth.
We need to realize what is at play behind every situation and realize that this is just how we’re hardwired. It’s not fun, but we have to deal with it. We have to look beyond the surface and see what is really there.
Now men, I’m going to make it really easy for you. I’m going to tell you some things about women that you need to understand. Women have the need to feel secure. Having money is peace of mind. Now this does not mean that they need hundreds of thousands of dollars to feel secure. It does not mean that women only care about money. This means that we have this crazy gland in our bodies called a security gland, and when we see that there’s money in the bank to cover emergencies, that security gland begins to relax, to loosen up. When it begins to loosen up, we begin to loosen up.
That leads me to the second thing to remember. Having an emergency fund will create security for the woman, which will, in turn, benefit the entire household. Let’s be honest, when the woman isn’t happy, no one is happy. It’s like that in every house, and it’s just how it is. When that security gland is in overdrive because you don’t have money in the bank and there’s a money issue, then things can get ugly really fast. Ladies, do you ever lay awake at night thinking about money while your husband is on his side of the bed snoring his head off? Does it ever tick you off that you’re awake and fretting over this stuff and he’s off in la-la land dancing with gumdrops and candy canes? I know it does me. He can do that because he doesn’t have that security gland.
Men, if you want to do your wife a huge favor, and you want to show her how much you care, put together an emergency fund. The quality of your life will improve greatly, as will yours. If you put money in an emergency fund and leave it alone, and prove to her that you will leave it alone, then it will be the BEST investment you ever make.
That leads me to the second thing to remember. Having an emergency fund will create security for the woman, which will, in turn, benefit the entire household. Let’s be honest, when the woman isn’t happy, no one is happy. It’s like that in every house, and it’s just how it is. When that security gland is in overdrive because you don’t have money in the bank and there’s a money issue, then things can get ugly really fast. Ladies, do you ever lay awake at night thinking about money while your husband is on his side of the bed snoring his head off? Does it ever tick you off that you’re awake and fretting over this stuff and he’s off in la-la land dancing with gumdrops and candy canes? I know it does me. He can do that because he doesn’t have that security gland.
Men, if you want to do your wife a huge favor, and you want to show her how much you care, put together an emergency fund. The quality of your life will improve greatly, as will yours. If you put money in an emergency fund and leave it alone, and prove to her that you will leave it alone, then it will be the BEST investment you ever make.
Now ladies, let me tell you some things about your men. Men have the need to feel like they are contributing to the welfare of the family. We all have heard and know that men are to provide for the temporal welfare of the family. This is something that is hardwired into their brains. In order to feel productive, they need to be providers. It goes back to the earliest days – men left the cave, went out, killed something and drug it home. It’s what they do, and it’s what they still want to do.
Most men have difficulty leaving money in a savings account instead of investing it or finding a bigger, better deal. Not all men are horrible at saving money and leaving it alone. But a majority of men will be okay with saving money, until they find a BBD (Bigger Better Deal). It drove my husband nuts to leave money in our savings account before we found Dave. If we had money, he wanted to go invest it. He wanted to put it in a CD. He wanted to do this and that with it. Why? Because it was just sitting there and he thought he could find a bigger and better deal to make more money with it. With the man doing this kind of stuff, it negates the security that the wife feels. So you both have to work together and decide that there’s going to be an emergency fund that just sits there. It doesn’t do anything but sit there.
Another thing, and a very important thing to remember about men is that men often define themselves by what they do, not who they are. How many times have you ask a man to tell you about himself and the very first thing he says that he is, is his profession? Try it – ask some random guys to tell you about themselves and they will say, “Hi, I’m Joe, I’m a banker.” Or “Hi, I’m Bob and I’m an accountant. Too many times you ask a guy who he is and he says what he does. Men, you need to get out of that! You need to be someone separate and apart from what you do. You can say, “I am a father. I am a loving husband. I am a witness of Christ.” You are so much more than an occupation. That is why men have self-esteem issues when they are in the middle of a career crisis. They have lost their sense of self.
Most men have difficulty leaving money in a savings account instead of investing it or finding a bigger, better deal. Not all men are horrible at saving money and leaving it alone. But a majority of men will be okay with saving money, until they find a BBD (Bigger Better Deal). It drove my husband nuts to leave money in our savings account before we found Dave. If we had money, he wanted to go invest it. He wanted to put it in a CD. He wanted to do this and that with it. Why? Because it was just sitting there and he thought he could find a bigger and better deal to make more money with it. With the man doing this kind of stuff, it negates the security that the wife feels. So you both have to work together and decide that there’s going to be an emergency fund that just sits there. It doesn’t do anything but sit there.
Another thing, and a very important thing to remember about men is that men often define themselves by what they do, not who they are. How many times have you ask a man to tell you about himself and the very first thing he says that he is, is his profession? Try it – ask some random guys to tell you about themselves and they will say, “Hi, I’m Joe, I’m a banker.” Or “Hi, I’m Bob and I’m an accountant. Too many times you ask a guy who he is and he says what he does. Men, you need to get out of that! You need to be someone separate and apart from what you do. You can say, “I am a father. I am a loving husband. I am a witness of Christ.” You are so much more than an occupation. That is why men have self-esteem issues when they are in the middle of a career crisis. They have lost their sense of self.
Because men and women are so different, they process financial problems differently.
To men, money represents a scorecard. If they experience financial problems, they lose self esteem. I was just saying how a man going through a career crisis loses his sense of self if he defines himself by what he does. When you have financial problems, the man’s ego takes a direct hit. He is still Sir Galahad, he has the sword and the shield, but they are a bit rusty, and he’s unsure that he can go out and slay the dragon. He needs you to build his confidence in himself, and to help him pick up the shattered ego and put it back together so that he can go out and slay the dragon and save the fair princess.
Speaking of the fair princess…to women, financial problems cause fear. When facing financial problems, we women feel trapped – locked in the highest room of the tallest tower, guarded by that dragon. We need our knight to come rescue us by reassuring us that things are going to be okay – no matter what happens. Men, your wives do not need to hear you singing the blues about the finances. She needs you to reassure her that you’ll work together to make it through this.
To men, money represents a scorecard. If they experience financial problems, they lose self esteem. I was just saying how a man going through a career crisis loses his sense of self if he defines himself by what he does. When you have financial problems, the man’s ego takes a direct hit. He is still Sir Galahad, he has the sword and the shield, but they are a bit rusty, and he’s unsure that he can go out and slay the dragon. He needs you to build his confidence in himself, and to help him pick up the shattered ego and put it back together so that he can go out and slay the dragon and save the fair princess.
Speaking of the fair princess…to women, financial problems cause fear. When facing financial problems, we women feel trapped – locked in the highest room of the tallest tower, guarded by that dragon. We need our knight to come rescue us by reassuring us that things are going to be okay – no matter what happens. Men, your wives do not need to hear you singing the blues about the finances. She needs you to reassure her that you’ll work together to make it through this.
In the middle of a crisis, Sir Galahad already is unsure of himself and doesn’t know if he can slay the dragon. He has a bruised ego, the last thing he needs is for you to sound like a barking Chihuahua at his ankles when he's working through a career or money crisis. That doesn’t mean that you need to just let him do whatever he wants, you may need to push him in the right direction, but you need to do it with love and understanding. You need to realize that he just lost a sense of self, and while you want to give him a swift kick in the pants, he may need you to stroke his ego and nurture him for a while before he’s ready to go out there and slay the dragon.
Men, in the middle of a crisis, you need to tell your wife the truth. She is not an idiot, she does not need to be lied to and told that everything will be just fine. You need to tell her the truth. You need to reassure that you’ll work together. She needs someone to say “If it gets bad and they take some of our stuff, they can’t take us.” She needs that reassurance and 3-5 extra non-sexual hugs each and every day. It’s a very emotional thing for a woman to be going through this stuff, and she’s going to need you to help her feel like she’s not in it alone, just like she has to help you feel like you’re not in it alone.
Men, in the middle of a crisis, you need to tell your wife the truth. She is not an idiot, she does not need to be lied to and told that everything will be just fine. You need to tell her the truth. You need to reassure that you’ll work together. She needs someone to say “If it gets bad and they take some of our stuff, they can’t take us.” She needs that reassurance and 3-5 extra non-sexual hugs each and every day. It’s a very emotional thing for a woman to be going through this stuff, and she’s going to need you to help her feel like she’s not in it alone, just like she has to help you feel like you’re not in it alone.
If you don’t, this financial stuff will mess with your marriage. And if being different and processing financial issues differently wasn’t bad enough...
Oppostites attract. You know how it is, one of you is hot, the other is cold. One of you is on time for everything, the other will be late to their own funeral. I think the Lord has a sense of humor because we’re made this way – to be opposites. Larry Burkett said "If two people just alike get married, then one of you is unnecessary."
There is another opposite in every relationship, especially when talking about money. Each relationship has a nerd and a free spirit. The Nerd is the one who likes doing the budget, likes spreadsheets, graphs, flow charts, and who is organized. The free spirit isn’t the bad person in the relationship – the free spirit just doesn’t give a flip about flow charts and spreadsheets. The nerd needs the free spirit, and the free spirit needs the nerd. I am the nerd in my marriage, and my husband is the free spirit. I get a kick out of budgeting, finances, spreadsheets - him….not so much. But that’s okay. If it wasn’t for him, I’d live in a cave, collect lint and only come out on double coupon Thursdays. Without me, he’d be oblivious to his financial situation. We balance each other out. I’m a saver, he’s a spender. Again, there’s this balance.
There is another opposite in every relationship, especially when talking about money. Each relationship has a nerd and a free spirit. The Nerd is the one who likes doing the budget, likes spreadsheets, graphs, flow charts, and who is organized. The free spirit isn’t the bad person in the relationship – the free spirit just doesn’t give a flip about flow charts and spreadsheets. The nerd needs the free spirit, and the free spirit needs the nerd. I am the nerd in my marriage, and my husband is the free spirit. I get a kick out of budgeting, finances, spreadsheets - him….not so much. But that’s okay. If it wasn’t for him, I’d live in a cave, collect lint and only come out on double coupon Thursdays. Without me, he’d be oblivious to his financial situation. We balance each other out. I’m a saver, he’s a spender. Again, there’s this balance.
When both work together, they find a unity that cannot be found any other way. One thing that both the free spirit and the nerd need to understand is maturity.
Children do what feels good. Children act on their impulses. It is their very nature to do so, because they have yet to learn self restraint or control.
Adults delay pleasure, devise a plan, and execute that plan. That is called living within our means and creating a budget.
"I deserve it" is childish behavior, and has NO place in a marriage. This is the one thing that really gets my goat when working with people. “I deserve it” You don’t deserve squat. Just because you’re breathing doesn’t mean that you’re entitled to something you can’t afford! It drives me nuts when I hear women say “He works hard, he deserves to spend his money on whatever he wants.” NO, he doesn’t! If he can’t afford it without it having an impact on the family, then he doesn’t deserve it. We need to kick this sense of entitlement crap right out the window. If you’re in debt up to your eyeballs, you do not deserve a new pair of shoes because they’re cute. If you don’t have a dime in savings, you do not deserve a fancy dinner out. If you can barely make your bills and you haven’t had a manicure in a long time, and you say forget the bills – I deserve it – no you don’t.
Mature adults delay pleasure.
Adults delay pleasure, devise a plan, and execute that plan. That is called living within our means and creating a budget.
"I deserve it" is childish behavior, and has NO place in a marriage. This is the one thing that really gets my goat when working with people. “I deserve it” You don’t deserve squat. Just because you’re breathing doesn’t mean that you’re entitled to something you can’t afford! It drives me nuts when I hear women say “He works hard, he deserves to spend his money on whatever he wants.” NO, he doesn’t! If he can’t afford it without it having an impact on the family, then he doesn’t deserve it. We need to kick this sense of entitlement crap right out the window. If you’re in debt up to your eyeballs, you do not deserve a new pair of shoes because they’re cute. If you don’t have a dime in savings, you do not deserve a fancy dinner out. If you can barely make your bills and you haven’t had a manicure in a long time, and you say forget the bills – I deserve it – no you don’t.
Mature adults delay pleasure.
In, One for the Money - a Guide to Family Finances, Elder Marvin J. Ashton says, "Married couples show genuine maturity when they think of their partner's and their family's needs ahead of their own spending impulses. Money management skills should be learned together in a spirit of cooperation and love on a continuous basis."
That is maturity. When you think of someone else’s needs above your own. When you put the family’s needs ahead of your own desires, that is maturity. My husband, bless his heart, learned a long time ago that the paycheck he gets is not HIS money, it is our money. It is the money for our family to function on.
Does that mean that he can’t ever get anything, or that I can’t ever get anything? No. When we need something or have a reasonable want, we go and accommodate that need or want. Do we not pay the bills because we feel like we deserve something? No, feeling like we deserve things we can’t afford is what got us into debt in the first place.
Does that mean that he can’t ever get anything, or that I can’t ever get anything? No. When we need something or have a reasonable want, we go and accommodate that need or want. Do we not pay the bills because we feel like we deserve something? No, feeling like we deserve things we can’t afford is what got us into debt in the first place.
It is important to put the needs of the family (or of your spouse) above your own desires. Remember what we talked about earlier. For women, the greatest thing you can do for them financially is to get an emergency fund together. It gives them peace of mind.
Why is this stuff so important? Because bankruptcy and divorce go hand-in-hand. Financial hardships cause problems in your marriage. The #1 cause of divorce is money fights and money problems. That is why this stuff is so important. It is important to understand your spouse and how he or she relates with money. You don't want Sir Galahad to take his sword and leave you in the tower. Likewise, Sir Galahad doesn't want to slay the dragon, climb to the tallest tower and find that the princess skipped town. You both have to do your part in this, and when you do that, you will eliminate those issues. If you take the major cause of marital problems out of the equation, then you will be setting yourself up for success.
Dave Ramsey said, "When you come into agreement on purchases and on a budget, you can agree on your value system. As you agree on your value system, you'll see a change in your relationship." As husband and wife work together and get on the same page, financially, they will grow as a couple. They will be able to work through more thanings than just money stuff. If they work through these issues, they will be changing their family trees. The first step to changing their family trees is to put some money in savings.
Saving Money - part 1
Saving Money:
The emergency fund (or savings account) is putting your family's needs first.
The Wall Street Journal reported that the average American family saves -2.2%. Yes that is a NEGATIVE 2.2%. Americans have been spending more than they make and not saving anything for a long long time. It has only recently become a trend to squirrel a little bit of money away in savings, and most people only have a couple hundred dollars in savings. Prophets and apostles have been telling us for years to have an emergency fund. We do not want to be like those people who didn't listen to Noah when he was building the Ark. We are being warned people - the time to act is now. The prophets and apostles aren't just saying this stuff to be saying it. They are trying to protect us and help us protect ourselves and our families. This stuff is important, so why aren't we doing it?
You will only save money when it becomes very, VERY important to you.
How many of you are parents or hope to be one day? How many of you have a kid somewhere on the planet that you kind of like? What if you found out that there was a new disease wiping out kids everywhere, and that you had to pay for a special surgery that insurance didn't cover? The stipulations were that you had to pay $10,000 up front for the cost of the surgery, you couldn't borrow the money or use "bill me later". You couldn't borrow the money from family and friends and it couldn't be money you already had in savings. Would you be able to come up with the $10,000 in 9 months to save your child's life? You bet you would! You'd be thinking "let's get a 2nd or 3rd job, let's cut the cable, let's have yard sales, let's eat beans and rice, rice and beans because THIS IS SERIOUS, THIS MATTERS!" Well folks, this IS serious, this matters! We have an entire generation of people who think that the government is going to take care of them when they retire. This same government who just spent a trillion dollars that it doesn't have, is going to take care of them! If you aren't to retirement age yet, and you're banking on the government to take care of you, then you'd better pick up the book "101 Ways to Eat Alpo and Love It." If you're 30 years old, you should believe more in UFOs than in Social (In)Security. If you think Social Security works, you can't do math. Savings has to become a priority, and you have to make it a priority.
Like tithing, you have to take it off the top or else it won't get done. You pay the Lord first, then yourself, then your debts and then the rest can be divided up any way you want. This does NOT mean to not pay your bills so you can save money. Pay your bills, stay current, but if you have any leeway in your budget, you need to be saving some money somewhere. If you wait and don't do it at the top of the budget, the termites are going to come and carry that money away before you know what happened to it.
Proverbs 21:20, "There is a treasure to be desired and oil in the dwelling of the wise; but a foolish man spendeth it up." If you spend everything that you make, then you are a fool. Don't be mad at me - the Lord said it. According to that, I've been a fool in my life. According to that, I've also learned to be more wise.
I'm not saying you can't spend any money. Remember how I told you, last month, that you could spend $100 a month on spandex and $30 on tube socks? You sure can, and that's fine as long as you can afford it, plan to spend that much, and are all set with your financial plan and obligations. You can live your life - that's what money is there for. Money is for impacting the things and people you care about. I'll take that a step further. Saving money is for impacting the things and people you care about. We had a member of the class share a story about how her mother-in-law spends all she makes, has nothing set aside for retirement, and one day will have to rely on her only son (and his wife) to take care of her. If she were wise and prudent, she would have money in savings not only to impact HER life when she retires, but to impact the lives of those she cares about.
You cannot just roll through life living for today, because tomorrow is coming and it's not going to be pretty if you haven't planned ahead. Dave has a little saying that I just love. "Live like no one else, so that later you can LIVE like no one else." That means to scrimp, save, sacrifice today, so that one day you don't have to live that way and you can truly enjoy life.
There are 3 Things that you save money for:
1. Emergencies
2. Purchases - don't ask "how much down?" - ask "how much?"
3. Wealth Building
The first thing I want to touch on is the Emergency Fund. The very first step to financial freedom is the $1000 mini emergency fund. This is the very first step because it is the most important. You cannot learn to walk until after you crawl, which is why we do these baby steps in order.
This is for EMERGENCIES ONLY! That couch is not an emergency; the TV on sale is not an emergency. Christmas, Birthdays, and school clothes are NOT emergencies. All of those things can be planned for. The emergency fund is for TRUE emergencies - the car breaks down, the AC needs to be fixed, ER trips. When you use the Emergency Fund, you replenish it as quickly as you can. It's purpose is to keep you from going into more debt when life happen, and we all know that life happens.
If you have an emergency fund, you do not need a credit card for emergencies. Seriously, you don't. We've lived the last 3 1/2 years without a credit card, and we've managed just fine without one. We've even had 3 kids in the last 3 1/2 years, and we've done it without going into more debt. The emergency fund takes the place of any credit card. If the car breaks down, you just fix it. If the kids need to go to the ER, you just go. You know the money is there.
The third baby step to financial freedom is a fully-funded emergency fund of 3-6 months expenses. *step 2 is pay off debt which is the next class* You may wonder why we don't do this step first. 1. Because it takes a long time to put that money together. This fund usually consists of $10,000-$15,000 and if you're in debt, it will take you a lot longer to pull this money together. When we first started out, we had $1.50 left over at the end of each month. If we'd made this our first step, we'd still be trying to pull it together. 2. It makes more sense to get it together after you're debt free (except your house). Would you borrow $15,000 at 9% interest to put it in the bank to gain .4% interest? No because that doesn't make much sense. Well, if you have that much money in savings and you're in debt, that's what you're doing. You are not making your money work for you. If you were to use that $15,000 to pay off debt, you'll be debt free faster and then be able to rebuild that fully-funded emergency fund.
Again, this is for emergencies ONLY.
Both the mini and the fully-funded emergency funds should be accessible, but not TOO accessible.
Where Do I Keep My Emergency Fund?
The first place you can choose is in a savings account at a local bank or credit union. I say local banks or credit unions because you will get better customer service and you will be supporting local business. With the big banks wanting to take federal bail out money, there will be a lot of changes and upheavals going on, so I avoid them like the plague, personally. I also suggest setting up the savings account separate and apart from your typical checking account. It makes it too easy to dip into savings when they are linked together.
The second place is in a money market account, with check writing capabilities. This is not the best place for the $1000 emergency fund, but it is exactly where the fully-funded emergency fund needs to be. There is a limit on how many checks you can write each month, and if you ever had to live off your full emergency fund, you can write yourself a check every month and then use your normal checking account as you typically would.
The third place is in an ING Direct Orange savings account. They are insured through the FDIC, but all of the banking is done online or over the phone. I will often tell people who have a hard time staying out of their Emergency Funds to put their money there because it's a little harder to access. There is a 2 business day transfer period, so you really have to think about what you are going to spend your money on. This is where we have our emergency fund, and we have not had any issues with the 2 day waiting period. An ING direct orange savings account also gains 1.85% interest compared to .42% which is the average of most banks. Contact me if you
The emergency fund is not meant to make you money. It's there to be your safety net.
An emergency fund is Murphy Repellent and insurance against life. We all know who Murphy is, right? Murphy's Law: Whatever can go wrong, will go wrong. Murphy likes to visit people – especially when they begin to change their financial lives around. He just tried to camp out at our house, but because we had the emergency fund, we were able to kick him to the curb super fast. It is Murphy repellent. It keeps him away, but if he does show up, you can get rid of him quickly.
Grandma always told us to save for a rainy day. Well, that rainy day is coming because everyone that has a pulse is going to experience an emergency of some kind. Money Magazine says that 80% of you will have a major negative financial event in any 5-10 year period. That could be a layoff, a loss of a job, hospital bills, a car accident. Something is going to happen. "Now Clarisse, you should be more positive." I AM POSITIVE that it’s going to rain so get your umbrella.
I asked some gals in my online Dave Ramsey Fans group what they thought of having their Emergency Fund. One gal said, “An Eemergency Fund turns an otherwise catastrophic event into simply, an inconvenience.” Another said, “My husband’s job is on the line, knowing that he could lose it at any moment, but between the Fully-Funded Emergency Fund and knowing that I’ve gotten good deals and have gotten food stocked up, it is the most amazing feeling in the world.” Another gal said, “When Murphy strikes, I can still be in control.”
And my favorite is “An Emergency Fund makes a good cushion, and a really great pillow because you’ll be able to sleep at night.”
An Emergency Fund will be the best investment you ever make.
The emergency fund (or savings account) is putting your family's needs first.
The Wall Street Journal reported that the average American family saves -2.2%. Yes that is a NEGATIVE 2.2%. Americans have been spending more than they make and not saving anything for a long long time. It has only recently become a trend to squirrel a little bit of money away in savings, and most people only have a couple hundred dollars in savings. Prophets and apostles have been telling us for years to have an emergency fund. We do not want to be like those people who didn't listen to Noah when he was building the Ark. We are being warned people - the time to act is now. The prophets and apostles aren't just saying this stuff to be saying it. They are trying to protect us and help us protect ourselves and our families. This stuff is important, so why aren't we doing it?
You will only save money when it becomes very, VERY important to you.
How many of you are parents or hope to be one day? How many of you have a kid somewhere on the planet that you kind of like? What if you found out that there was a new disease wiping out kids everywhere, and that you had to pay for a special surgery that insurance didn't cover? The stipulations were that you had to pay $10,000 up front for the cost of the surgery, you couldn't borrow the money or use "bill me later". You couldn't borrow the money from family and friends and it couldn't be money you already had in savings. Would you be able to come up with the $10,000 in 9 months to save your child's life? You bet you would! You'd be thinking "let's get a 2nd or 3rd job, let's cut the cable, let's have yard sales, let's eat beans and rice, rice and beans because THIS IS SERIOUS, THIS MATTERS!" Well folks, this IS serious, this matters! We have an entire generation of people who think that the government is going to take care of them when they retire. This same government who just spent a trillion dollars that it doesn't have, is going to take care of them! If you aren't to retirement age yet, and you're banking on the government to take care of you, then you'd better pick up the book "101 Ways to Eat Alpo and Love It." If you're 30 years old, you should believe more in UFOs than in Social (In)Security. If you think Social Security works, you can't do math. Savings has to become a priority, and you have to make it a priority.
Like tithing, you have to take it off the top or else it won't get done. You pay the Lord first, then yourself, then your debts and then the rest can be divided up any way you want. This does NOT mean to not pay your bills so you can save money. Pay your bills, stay current, but if you have any leeway in your budget, you need to be saving some money somewhere. If you wait and don't do it at the top of the budget, the termites are going to come and carry that money away before you know what happened to it.
Proverbs 21:20, "There is a treasure to be desired and oil in the dwelling of the wise; but a foolish man spendeth it up." If you spend everything that you make, then you are a fool. Don't be mad at me - the Lord said it. According to that, I've been a fool in my life. According to that, I've also learned to be more wise.
I'm not saying you can't spend any money. Remember how I told you, last month, that you could spend $100 a month on spandex and $30 on tube socks? You sure can, and that's fine as long as you can afford it, plan to spend that much, and are all set with your financial plan and obligations. You can live your life - that's what money is there for. Money is for impacting the things and people you care about. I'll take that a step further. Saving money is for impacting the things and people you care about. We had a member of the class share a story about how her mother-in-law spends all she makes, has nothing set aside for retirement, and one day will have to rely on her only son (and his wife) to take care of her. If she were wise and prudent, she would have money in savings not only to impact HER life when she retires, but to impact the lives of those she cares about.
You cannot just roll through life living for today, because tomorrow is coming and it's not going to be pretty if you haven't planned ahead. Dave has a little saying that I just love. "Live like no one else, so that later you can LIVE like no one else." That means to scrimp, save, sacrifice today, so that one day you don't have to live that way and you can truly enjoy life.
There are 3 Things that you save money for:
1. Emergencies
2. Purchases - don't ask "how much down?" - ask "how much?"
3. Wealth Building
The first thing I want to touch on is the Emergency Fund. The very first step to financial freedom is the $1000 mini emergency fund. This is the very first step because it is the most important. You cannot learn to walk until after you crawl, which is why we do these baby steps in order.
This is for EMERGENCIES ONLY! That couch is not an emergency; the TV on sale is not an emergency. Christmas, Birthdays, and school clothes are NOT emergencies. All of those things can be planned for. The emergency fund is for TRUE emergencies - the car breaks down, the AC needs to be fixed, ER trips. When you use the Emergency Fund, you replenish it as quickly as you can. It's purpose is to keep you from going into more debt when life happen, and we all know that life happens.
If you have an emergency fund, you do not need a credit card for emergencies. Seriously, you don't. We've lived the last 3 1/2 years without a credit card, and we've managed just fine without one. We've even had 3 kids in the last 3 1/2 years, and we've done it without going into more debt. The emergency fund takes the place of any credit card. If the car breaks down, you just fix it. If the kids need to go to the ER, you just go. You know the money is there.
The third baby step to financial freedom is a fully-funded emergency fund of 3-6 months expenses. *step 2 is pay off debt which is the next class* You may wonder why we don't do this step first. 1. Because it takes a long time to put that money together. This fund usually consists of $10,000-$15,000 and if you're in debt, it will take you a lot longer to pull this money together. When we first started out, we had $1.50 left over at the end of each month. If we'd made this our first step, we'd still be trying to pull it together. 2. It makes more sense to get it together after you're debt free (except your house). Would you borrow $15,000 at 9% interest to put it in the bank to gain .4% interest? No because that doesn't make much sense. Well, if you have that much money in savings and you're in debt, that's what you're doing. You are not making your money work for you. If you were to use that $15,000 to pay off debt, you'll be debt free faster and then be able to rebuild that fully-funded emergency fund.
Again, this is for emergencies ONLY.
Both the mini and the fully-funded emergency funds should be accessible, but not TOO accessible.
Where Do I Keep My Emergency Fund?
The first place you can choose is in a savings account at a local bank or credit union. I say local banks or credit unions because you will get better customer service and you will be supporting local business. With the big banks wanting to take federal bail out money, there will be a lot of changes and upheavals going on, so I avoid them like the plague, personally. I also suggest setting up the savings account separate and apart from your typical checking account. It makes it too easy to dip into savings when they are linked together.
The second place is in a money market account, with check writing capabilities. This is not the best place for the $1000 emergency fund, but it is exactly where the fully-funded emergency fund needs to be. There is a limit on how many checks you can write each month, and if you ever had to live off your full emergency fund, you can write yourself a check every month and then use your normal checking account as you typically would.
The third place is in an ING Direct Orange savings account. They are insured through the FDIC, but all of the banking is done online or over the phone. I will often tell people who have a hard time staying out of their Emergency Funds to put their money there because it's a little harder to access. There is a 2 business day transfer period, so you really have to think about what you are going to spend your money on. This is where we have our emergency fund, and we have not had any issues with the 2 day waiting period. An ING direct orange savings account also gains 1.85% interest compared to .42% which is the average of most banks. Contact me if you
The emergency fund is not meant to make you money. It's there to be your safety net.
An emergency fund is Murphy Repellent and insurance against life. We all know who Murphy is, right? Murphy's Law: Whatever can go wrong, will go wrong. Murphy likes to visit people – especially when they begin to change their financial lives around. He just tried to camp out at our house, but because we had the emergency fund, we were able to kick him to the curb super fast. It is Murphy repellent. It keeps him away, but if he does show up, you can get rid of him quickly.
Grandma always told us to save for a rainy day. Well, that rainy day is coming because everyone that has a pulse is going to experience an emergency of some kind. Money Magazine says that 80% of you will have a major negative financial event in any 5-10 year period. That could be a layoff, a loss of a job, hospital bills, a car accident. Something is going to happen. "Now Clarisse, you should be more positive." I AM POSITIVE that it’s going to rain so get your umbrella.
I asked some gals in my online Dave Ramsey Fans group what they thought of having their Emergency Fund. One gal said, “An Eemergency Fund turns an otherwise catastrophic event into simply, an inconvenience.” Another said, “My husband’s job is on the line, knowing that he could lose it at any moment, but between the Fully-Funded Emergency Fund and knowing that I’ve gotten good deals and have gotten food stocked up, it is the most amazing feeling in the world.” Another gal said, “When Murphy strikes, I can still be in control.”
And my favorite is “An Emergency Fund makes a good cushion, and a really great pillow because you’ll be able to sleep at night.”
An Emergency Fund will be the best investment you ever make.
Saving Money - part 2
Saving For Purchases:
The second thing we save money for is purchases. 12 months same as cash is NOT the same as cash. It sounds like it'd be the same, but it isn't. Furniture, home improvement, and electronics stores do not want to help you. They want to make money, and so they have devised this way of making a killing off of people, and it's this 12 months same as cash junk. If they didn't make money off of it, would they do it? No way. 78% of people do not pay off 12 months same as cash within 12 months. So, if you play their game, 8 times out of 10, they will win. If you miss a payment, are late on a payment, or do not pay it off in full by the time the 12 months is over, you are slapped with not only a high interest rate, but you get hit with all ove the interest that accrued over that 12 month period as well. Chances are we all know someone (or ourselves) who have played this game and lost.
If by chance you played this game and paid it off in time, you didn't get away unscathed. Want to know why? Because chances are, by the time you finally paid that thing off, you started to hate it. I did this with a sofa and loveseat set from Rooms to Go. It was 24 months same as cash, and I thought it was worth it. It was this beautiful microfiber RED set and it was beautiful - until we got it home and started to live on it. By the time that thing was paid for, the back cushions were all smushed down, lumpy and ugly and the red couch started to turn every single piece of white fabric that went anywhere remotely close to it pink. I hated that thing when I finally owned it. If I had paid cash, I probably could have let it go in a yard sale and gotten something more practical without tinting capabilities.
If you still liked your purchase and you paid it off in time, you still didn't get away scott free. Want to know why? Because you paid too much fo rit. You will get big bargains and deals when you use cash. You cannot haggle when using credit or 12 months same as cash. We are going to have a huge lesson on how to do this later on as well. It is fantastic and oh, so true. I've done it. I've haggled. My family even gives me their cash so that I can haggle for them. Never underestimate the power of cash. When you walk in that store with cash, the sales associates will be hovering around you like vultures. They get all giddy when they see cash. We needed a new washer a couple of years ago, and I got $250 knocked off the price of it on my very first time of haggling. When our TV died last year, we saved up and had a yard sale to get some cash together to replace it. We found a nice TV on sale for $999 (that was the sale price). I was able to talk the guy down to $715 AFTER TAX by haggling. And yes, that's after the 9.25% sales tax in TN. Do you think I could have done that if I was planning on financing it? NO way because they saw that cash, they had the emotional reaction to it, and they were willing to make the sale so they could get their hands on it.
So that is why it's important to save up for purchases.
The second thing we save money for is purchases. 12 months same as cash is NOT the same as cash. It sounds like it'd be the same, but it isn't. Furniture, home improvement, and electronics stores do not want to help you. They want to make money, and so they have devised this way of making a killing off of people, and it's this 12 months same as cash junk. If they didn't make money off of it, would they do it? No way. 78% of people do not pay off 12 months same as cash within 12 months. So, if you play their game, 8 times out of 10, they will win. If you miss a payment, are late on a payment, or do not pay it off in full by the time the 12 months is over, you are slapped with not only a high interest rate, but you get hit with all ove the interest that accrued over that 12 month period as well. Chances are we all know someone (or ourselves) who have played this game and lost.
If by chance you played this game and paid it off in time, you didn't get away unscathed. Want to know why? Because chances are, by the time you finally paid that thing off, you started to hate it. I did this with a sofa and loveseat set from Rooms to Go. It was 24 months same as cash, and I thought it was worth it. It was this beautiful microfiber RED set and it was beautiful - until we got it home and started to live on it. By the time that thing was paid for, the back cushions were all smushed down, lumpy and ugly and the red couch started to turn every single piece of white fabric that went anywhere remotely close to it pink. I hated that thing when I finally owned it. If I had paid cash, I probably could have let it go in a yard sale and gotten something more practical without tinting capabilities.
If you still liked your purchase and you paid it off in time, you still didn't get away scott free. Want to know why? Because you paid too much fo rit. You will get big bargains and deals when you use cash. You cannot haggle when using credit or 12 months same as cash. We are going to have a huge lesson on how to do this later on as well. It is fantastic and oh, so true. I've done it. I've haggled. My family even gives me their cash so that I can haggle for them. Never underestimate the power of cash. When you walk in that store with cash, the sales associates will be hovering around you like vultures. They get all giddy when they see cash. We needed a new washer a couple of years ago, and I got $250 knocked off the price of it on my very first time of haggling. When our TV died last year, we saved up and had a yard sale to get some cash together to replace it. We found a nice TV on sale for $999 (that was the sale price). I was able to talk the guy down to $715 AFTER TAX by haggling. And yes, that's after the 9.25% sales tax in TN. Do you think I could have done that if I was planning on financing it? NO way because they saw that cash, they had the emotional reaction to it, and they were willing to make the sale so they could get their hands on it.
So that is why it's important to save up for purchases.
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