In Debt Blogger

It’s been quite some time since I updated and I’m sorry.

I’ve been working twice as much just to stay on top of everything during this troubling time the economy is going through.  I’ve been neglecting a lot of my hobbies and I am working on changing that.

I have some posts that I’ve been working on, and I’ll be updating again soon.

This year I’m participating in FreeMoneyFinance’s March Madness. I submitted my post about Saving Money by NOT Changing your Own Oil and voting for Round One has ended and my post has made it through to the next round. Hopefully everyone that liked it will continue to vote for it in Round 2.

The winnings from March Madness go to the charity of the blogger’s choice. If I win, the proceeds are going to the March of Dimes.

Well some good news has come out of this whole ordeal with my car. I was able to score a new (slightly used) rear end on eBay for $385.00. The even better news is that the seller is local so I didn’t have to pay any astronomical shipping charges.

I did end up using my Emergency Fund for this purchase as well as some tools and other parts I needed to complete the repairs, so I’ll have to start building that back up right away.

In pulling out my old rear end I came to the determination that I also desperately needed new tires, so I placed an order for them online and they should be arriving today. This purchase needed to be financed.

On Thursday the rear end in my car blew up. I always knew this day was coming, but didn’t expect it to come so soon. The car only has 65,000 miles on it.

I’m scrambling trying to figure out a way to get my car back on the road and spending the least amount of money. I’ve priced new rear ends and they cost around $900 and I’d have to have it shipped freight ($350) — ouch. That’s if I do all the labor myself. I cringe to think how much a dealer would charge to do this job.

On the other hand, I can get a new take-off rear end on eBay.  This will cost me somewhere between $500 and $700. The good news is I should be able to pick it up locally, so no shipping charges.

I’m going back and forth on if I want to drain my E-Fund and put the balance on a credit card or put the entire purchase on a credit card. Both solutions frankly scare the crap out of me.

Having trouble getting approved for a new house or car loan? You’re not the only one. And now, the Better Business Bureau is warning that some companies are using the credit crunch to take advantage of consumers who want to clean up their credit.

The BBB reports that complaints against credit repair companies have risen for three straight years — increasing more than 37% since 2004. How can you avoid being scammed by these guys?

Know Your Rights:

If you contact a credit repair agency or respond to a credit repair offer, by law you must be provided with a copy of your consumer rights. This is a one-page document explaining your rights if you decide to dispute inaccurate information with a credit company.

Don’t Be Fooled:

Notice that I said “dispute inaccurate information.” A lot of these credit repair companies claim they will erase any credit blemishes. The fact is, nobody can remove accurate and timely information from your credit report. Not even the magical credit repair companies.

These credit repair companies are in it to make money. Most will charge a fee up front — sometimes as much as $1500. What, exactly, will they do for your hard-earned money? Not much. Besides the fact that they are not able to remove accurate information from your credit report, some companies will claim to get you new social security numbers or piggyback on someone else’s credit report to boost your credit score.

First, let me explain something. Having bad credit is NOT a valid reason for getting a new social security number. If it were, we’d all be applying for new Social Security numbers every month. It is a federal crime to misrepresent your Social Security Number or to obtain an Employer Identification Number from the Internal Revenue Service under false pretenses. Sound like fun? It isn’t. Don’t let these companies trick you into breaking federal law by misrepresenting the services they are providing.

Secondly, as I’ve mentioned previously, piggybacking is a thing of the past because of these very companies. Fair Isaac, the people responsible for credit scores, have disallowed people from “renting” out their credit scores to help boost someone else’s otherwise bad credit. Creditors don’t want to lend to someone who cannot pay their own bills and only have a decent score because they are “borrowing” someone else’s credit. If a repair company tries to sell you on this, don’t fall for it. It no longer works.

Do Your Own Work:

So, what, if any, legitimate service do these guys provide? The fact is the only thing they can legally do is stuff you can already do yourself. They will examine your credit report for any inaccuracies (debts that you don’t owe) and try to get them removed from your credit report.

What exactly qualifies for removal? Some people, wrongly, think they can call the credit bureaus and say “This creditor I owe $3000 to has his name misspelled on my credit report, therefore its inaccurate and I don’t owe this!”

I’m sorry. But that’s wrong. The only way inaccuracies are going to be removed are if: A) the debt was reported to the wrong social security number (rare) or B) the creditor made a mistake and you don’t owe the debt at all (somewhat less rare).

In either case all it takes is a call to the credit bureaus and filing a dispute form to get these removed from your credit report. It’s easy -and- you didn’t pay $1500 for it.

The bottom line is that anything legal these credit repair companies claim to do you can do yourself for free. And any illegal things they will do, you do not want to be involved in.

One final thing to note is that under the Fair Credit Reporting Act, you are entitled to a free copy of your credit report if you’ve been denied credit within the last 30 days. This means its absolutely free to review your credit report yourself, however, if the debts you owe are legitimate; nothing can be done.

MoneyNing has reached 1000+ subscriber count for his feed. If you recall from the original post, this means that he is going to be giving away the extra $500 between March 11th and March 15th.

You still have plenty of time to get in on this.  Check out MoneyNing’s post for tips on how you can increase your odds of winning.

FreeMoneyFinance has a very interesting and very scary article today about telemarketers (and scammers in general) being able to draft your checking account without your authorization by using a little known, obscure method called “demand draft” or “remotely created check”.

A very good reason to be sure to always check your bank statements for any “weird” transactions.

If you’re a member of Wachovia bank, I’d be especially worried. Apparently, top Wachovia executives have been aware of this scam for a long time but have done nothing about it because they were making millions of dollars from the scammers.

From the article: Wachovia continued processing fraudulent transactions for that account and others, partly because the bank charged fraud artists a large fee every time a victim spotted a bogus transaction and demanded their money back. One company alone paid Wachovia about $1.5 million over 11 months, according to investigators.

“We are making a ton of money from them,” wrote Linda Pera, a Wachovia executive, in 2005 about a company that was later accused by federal prosecutors of helping steal up to $142 million.

I noticed something today that should have been obvious but has taken me at least the past four months to realize:  my wife has five paydays this month.

And not only this month, but four months of the year. She is paid weekly and gets paid four times a month eight months out of the year and five times a month four months out of the year.

I’ve always been paid bi-weekly and thus get usually two paychecks ten months out of the year and three the other two months.

Why does this matter? Well, it matters because I’ve been calculating our budget under the assumption that she makes only four paychecks. Since I was calculating it incorrectly, this money was never being accounted for or managed properly. It should give us a couple extra credit card payments at the very least.

For months now we’ve seen foreclosure after foreclosure and people getting relatively painlessly bailed out of their mortgages that they could never afford to begin with. Signed your life away on an ARM? Don’t worry, the government will step in and freeze your rate so, even though you don’t pay your bills, you can still have a comparable mortgage to responsible borrowers.

We’ve seen the commercials of dozens of lawyers recommending you file for bankruptcy as a first option. Don’t worry, you can still keep your house! And, of course, the car dealership commercials: Bankruptcy? No problem. We’ll still sell you another car you can’t afford.

You, being the responsible and trustworthy consumer you are, say to yourself “Where is the incentive for people that actually pay their bills and maintain a healthy FICO score?”

Well it turns out that Fair Isaac, the company that calculates consume credit scores for lenders, is developing a new system that they promise will favor borrowers that have been responsible in managing their credit.

The system has been in development since 2006, before the sub-prime mortgage crisis developed. Experian and TransUnion will implement the system soon, but its unclear if EquiFax will follow.

Here’s how the system works:

No more “renting” out your credit

Are you an authorized user on someone else’s credit card? Well be ready to take a FICO hit.

Due to abuse, the company will no longer be reporting this credit rating benefit to your credit file. In fact, there have been companies that have been “renting” good credit ratings by matching someone with a bad credit score with someone that allowed that person to become an authorized user “just on paper.”

Industry insiders estimate that this change will negatively affect upwards of 30 percent of credit files.

Occasional mistakes will be forgiven

Lets say you have a late payment of 90 days past due on your credit from two years ago. If this is uncommon in your credit history, it won’t affect your credit score as much as it used to. It will be treated as an “isolated delinquency.”

Routine late payments will still negatively impact your score.

Active use now matters

Your FICO score will now be more dependent on how often you use your credit cards.

Have a card that’s just been gathering dust in a drawer with a zero balance? That credit card’s weight will now be lowered, thus making it less important in calculating your score. The net result: your FICO score will drop.

Different types of credit will improve score

The system works to reward borrowers that can manage multiple kinds of debt. Have a mortgage, an auto loan, and well-managed credit card debt? Expect your score to go up.

As with the old system, if you carry balances near your limit on credit cards, it will still negatively impact your score. It’s best to spread your debt out over a few cards to keep their individual balances low.

Painlessly shop around for loans

If you’ve ever purchased a home or a car, the lender will typically tell you to not have your credit run until your loan goes through. This is because credit inquiries show up on your credit report and too many of them will lower your credit score, possibly hurting your chances at getting the best rate on the loan you are applying for.

With the new system, this is no longer a problem as the credit inquiries will be weighed less heavily. This change is because, according to Fair Isaac, the average person has more credit accounts and loans today than in the past.

So what does this all mean? You might consider holding off on any major purchases for a couple months. You might qualify for a better rate.

I’ve read a lot of blog posts about paying off your high interest debt first. That by doing this, combined with the ’snow-ball’ method, will get you out of debt the fastest. I’ve been following this methodology for some time, but I’ve often wondered if it’s not the best solution for my particular situation. Let me explain…

The highest interest credit card I have is Capital One at 19.55%. Even if it was maxed out, my limit is low enough that my minimum payment would only be about $40/month. On the other hand, my loan on the GMC Sierra is only 8.0%. It seems like the smart thing to do would be to pay off my Capital One card, then CitiCard, etc. until I work my way down to the truck loan.

But what about my truck’s insurance? By not having the truck paid off, I’m forced to shell out an extra $143.00 a month for full coverage insurance. Normally, my vehicles are covered with liability + uninsured motorist. If I were involved in an accident, I would prefer to repair it myself instead of raising my deductible anyhow. Does paying off the high interest credit cards make up for this $1,716.00 I’m paying every year in unnecessary insurance? I’m not sure.

To me, it seems like the smart thing to do would be to do whatever I can to pay off the truck, lower the insurance costs, and use the money I’m saving (a whopping $564.79 a month!) to pay off the credit cards in very short order.

Any body have an opinion on this?