How to Settle A Debt for Less Than You Owe

Posted on September 27, 2011 Written by Leave a Comment

Being in the real estate Short Sale niche over the past 3 years has given me insight to how banks view their customers.  It’s also given me insight to the process involved in settling a debt for less than you owe.

I won’t go into detail about the different types of debts that you can have as most of them fall under the category of consumer debt.  I’ll focus primarily on these debts as they are the ones that are most often settled for less than is owed.  Consumer debt is basically anything that is not a mortgage.  There.  That makes it simple.  So how do we settle for less?

Let’s break it down to a rudimentary example.  You loan me $100.00 and I pledge to pay it back $10.00 at a time for 10 months.  For the first 3 months I pay on time, and you’re happy about that.  In the fourth month, I pay you late, and you extend some grace to me, but that doesn’t last long.  In the fifth month, I simply don’t pay you at all.

Quick recap.  You’ve loaned me $100.00.  I’ve paid you back $40.00.  I still owe you $60.00, but for some reason (and this is where the moral argument can be born), I am not paying you any more.  That reason may be legitimate, or not, but either way, the bottom line is, I owe you $60.00 and I am no longer paying.

It’s at this point that the relationship between the lender and the borrower becomes strained.  Whether you’re a bank, or just a friend lending money, you don’t want to have relationships in your life that become tainted by unfulfilled commitments.  They’re no fun.  Until the original agreement is either fulfilled, or renegotiated and ultimately settled, you’ll have tension.

(On a side note, the difference between a personal loan to a friend and a loan from a bank is that your friend probably cares about you and the value of the friendship isn’t worth the tension that a loan brings to it.  The bank, on the other hand, doesn’t give a crap about you.  They just want their money, and they’ll use every psychological tactic to instill fear in you to get what’s owed them.)

Both have one thing in common, however.  Both will always take less than you owe, if and only if they have come to believe they won’t get anything from you.  That’s the “hands in the air” feeling.

So in this example, I owe you $60.00 and I haven’t paid you in a long while, and it’s starting to affect my life in ways I don’t want.  So, to get the problem solved, I manage to strike a secondary deal with you (second to the original loan) and I offer you $20.00 to call it even.  You may want to know why, but ultimately, it’s been long enough that you no longer care about my hardship, nor do you want any excuses.  You just want some of your investment returned to you so you can go about your life and find better places to put your money.  So, you take it, and you settle the debt forever.

This simple exercise works whether you owe your friend $100, or you owe the bank $200,000.  Lawsuits are expensive, and nobody wants to go through them, so 99 times out of 100, he to whom you owe will take less than you owe when it comes down to it.

 

Filed Under: Tips and Tricks Tagged: , , , ,

Banks Love It When You’re Broke

Posted on August 16, 2011 Written by Leave a Comment

I was presented with an e-mail this evening by my “brick and mortar” bank.  About 5 years ago, I learned about online banks.  Not online banking, but online banks…in other words, banks that have no physical locations.  I learned that they offer higher rates of return on their basic products which were much higher than the local behemoth brick and mortar banks (Chase, Wells Fargo, Bank Of America, etc.)

One of these Banks (ING Direct) is the bank that I chose for my primary checking account.  They had only one stipulation…keep a brick and mortar bank account tied to the online bank account.  Okay.  No problem.  So, since then, I have been depositing my funds at Wells Fargo, then promptly moving them to ING Direct, just so I can have the account with the better return hold my money.  Online banks have better interest rates, and they operate just like a normal checking account…and they have a really cool debit card with no numbers indented on it.  :)  For those of you who had the previous card with two orange stripes, this will be a breath of fresh air, as the hourly employee will no longer be confused by the two separate stripes on the card.  However, now they’ll stare at the card, and say things like, “that’s cool,” or “neat, I’ve never seen one of these before.”

I’m getting off topic.

The e-mail that Wells Fargo sent me this evening notified me that I would soon be charged a $7.00 monthly service fee for my previously “Free” checking account if my balance fell below $1500.00.

“So what!” you say.  ”If you weren’t broke, you wouldn’t have to worry about it.  You’re saying you don’t have more than $1500.00?”  (Note:  Most Americans don’t have enough to survive more than one month without pay.)

NO.  That’s not what I am saying.  I AM saying that I don’t have more than $1500.00 in that account.  Remember, I only have the Wells Fargo bank account so I can have the online bank account, because I deposit my checks with Wells Fargo, but I transfer everything to ING Direct right away.

Aside from the fact that I’m using Wells Fargo as a proxy to warp my money to another bank, the truth remains that Wells Fargo has just put a premium on my account that can be calculated as an annual percentage rate, which also exposes the MASSIVE profits that a bank can make.

As I mentioned at the start of this article, the new fee for my “Free” checking account is $7.00/month, but only if I fall below $1500.00…at any point during the statement period.  That means that if I have a balance of $1501.00 for 30 days, but on one day I fall below $1500.00, I get charged.

Let’s break this down.  $7.00/month is the same as $84.00 per year.  Divide $84.00 by $1500.00 and you get 0.056, or 5.6% annual interest rate.

According to Bankrate.com, the current national money market average rate of return is 0.16%.  If the bank is charging you 5.6% to simply have a checking account that’s below their stated minimum, and they’re paying you .16% on your account, the difference, which is 5.44% is pure profit.  It’s not just profit, it’s astronomical profit, in the area of 3000%.

KEEP IN MIND, THIS IS A CHARGE BASED ON A MINIMUM BALANCE OF $1500.00.

Could it get worse?  Yes.

If you have $1400.00 in the account, then you’re being charged 6%.  $1300.00 = 6.5%.  $300.00 = 28%.  You can see that the less money you have, the more expensive it is to have money.  Banks LOVE it when you’re broke.

Let’s say all you have is $300.00 in your account.  You get charged $7.00 monthly for simply having an account ($84/year.)  You’ll earn 48 CENTS in interest from the bank and the net result, after a year, without accounting for compound interest, will be a balance of $216.48, or a LOSS of  about 27.8% of your account’s value.

So why would the bank do this?  Brick and mortar banks have operating costs above and beyond what current technology suggests they should have.  There’s no reason for a brick and mortar bank anymore.  We live in an electronic world.  The ONLY reason I EVER go to a bank is accommodate other people who continue to issue PAPER checks to me in consideration of services rendered.

Can I complain?  I suppose I can, but really?  Maybe not.  After all, I am using Wells Fargo as a vehicle to simply transfer my deposits somewhere else.  I’m not loyal to them.  Why should they accommodate me?  They can’t possibly profit from it…and anyone who tells you banks have any other motive than to profit from you is lying or is uninformed.

What they will realize, sooner than later, is that customers like myself, who are not loyal to their over-achieving financial institution, will abandon ship, and skip them, going straight to someone else, or simply stash the cash in a mattress.

 

 

Filed Under: Stupid Tax Tagged: , , , ,

The Right Way To Monitor Your Credit Report

Posted on November 24, 2010 Written by 1 Comment

Before I explain how I monitor my own credit report, I’ll fill you in on why I do it at all, and what I think of “credit.”

Your credit score, a name which is a facade for a cancerous mind-set in our culture, is actually a debt score.  It’s a measure of how much you love paying the banks hard earned money.  The only thing you need this magical rating for, which the financial industry can’t even decipher, is to borrow money, and thus, pay interest to someone else.

In the video game world, back in the 80′s, dropping a quarter in the slot added a “credit” which you could exchange for one play, which usually consisted of 3 lives.  At no time did you play the game, then add the quarter.  So, the word “credit” had been mangled to the banks’ advantage.

Is a credit score really important to your future?  Well, if it’s a high score, which is evidence that you borrow money and pay it back, then you can continue to borrow money.  If it’s a low score, you cannot.  If it’s a zero score, you can also borrow money.  Strange you say?  That’s right.  Even if your score is zero, meaning you have never borrowed money and you have no open accounts, you can get a mortgage.

So why is it at all important to know what your credit score is?

Aside from providing you with the illusion that you’re financially successful because of your high score, it is important to know what accounts are open on your report(s) as identity theft has become a very serious problem.  It’s also important to know that certain service providers, such as insurance companies, if you have a lower score (remember, a zero score is not a bad thing, but a middle of the road score is) they may raise your rates.  You may need to put a deposit on your utilities when you have them turned on, or you could run into trouble securing a mobile phone.

Most of these concerns mean nothing to the debt free.  If you manage your money well, you’ll have the money to put the deposits down with your cell phone company, or utility company, and after time, you’ll receive that deposit back.  Most people who cry foul at deposits do so because they don’t have any money, and they don’t have any money because they’re paying it to the banks instead of saving it.

The Right Way to Monitor Your Credit Report

There are companies out there that advertise free services that aren’t actually free.  In fact, they will trap you into memberships that bill you monthly or even annually, so you don’t notice, just to know your credit report.  This is a bad idea.  There is one website that you can go to, where you can order your credit report completely free of charge, one time per year, per credit reporting agency.

The name of that site is Annual Credit Report (www.annualcreditreport.com).  It’s NOT freecreditreport.com (which I will not link to.)  At AnnualCreditReport.com you have access to your credit report from each of the 3 reporting agencies one time per year.  Knowing that, the best way to stay on top of your credit report, to ensure someone hasn’t opened any accounts in your name, is to order one report every 4 months starting on the 1st of the year.

So, on January 1st, you would order your report from one of the reporting agencies, then on May 1st, the second agency, and then September 1st from the 3rd, until you reach January the following year, where you’d order the very first report again.  This ensures that you don’t have a 12 month gap where you may not know what’s going on.  You’ll be minimizing that gap down to 4 month periods instead.  If there is a dispute, it’s going to be easier to handle as less time has passed.

Get started today.  It actually is free.

Filed Under: Personal Finances, Planning and Budgeting Tagged: , , , ,

Prioritize Your Spending

Posted on September 25, 2009 Written by 1 Comment

Creating a budget, or as I prefer to call it, a spending plan, involves prioritizing your expenses, subtracting each expense until you reach a balance of zero from the net take-home pay you started with.

The following is a list of expenses in the order of ‘best practice’ priority that will help you reveal the painful truth of your bad financial habits.
Prioritize

  1. Housing:  Housing comes first.  If you don’t pay your rent or your mortgage, you won’t have a place to live.  This is priority one.
  2. Utilities:  Keep the lights, heat, and A/C on.
  3. Food:  You gotta eat to survive.  So feed yourself first.  And I’m not talking about eating out.  In terms of basic needs, eating out is a luxury that banks don’t like to see in the event that you have to prove financial hardship for a loan modification or short sale approval.
  4. Clothing:  Don’t get caught with your pants down.
  5. Transportation:  If your feet are the only thing you have then great.  Walk.  If not, then you’ve got to keep your transportation paid for, insured, and maintained so you can get to and from work.

Expenses above and beyond these are discretionary.  Yes, even the ones that you believe you MUST have will become discretionary during financial hardship, so come to terms with this in good times so you know what to expect and how to plan for bad times.  Failure to prioritize your spending in this manner can come back to bite you.

Filed Under: Personal Finances Tagged: , , , , ,