Credit Card Debt After Death

The good news is credit card debt can’t follow you into the hereafter - I’m pretty sure there’s no debtor’s hell where you spend time for leaving debt here on Earth. The bad news is that your family may have a hard time of it when you pass.

So what happens to credit card debt when you die?

The answer isn’t a cut-and-dry matter, I’m afraid. There are several factors that you have to consider, including the following:

1.) Are you the sole signer on the account?

2.) Do you live in a community property state?

These two questions make a big difference when it comes to handling credit card debt after death.

This is one instance where the credit card company doesn’t always win and sometimes they just have to suck it up.

If the account was a sole account in the deceased person’s name only, then it is their sole responsibility and the debt is not passed on to their heirs and family members - contrary to what collectors would like to make us believe.

The debt is passed to the deceased person’s estate and the estate is responsible for paying the debt. If there is not enough money to go around for all of the debts, then the creditor’s are notified that the estate is insolvent and they have to write it off. They may still try to collect from a spouse or from the executor of the estate - telling lies that the individual is responsible when they’re not. Keep in mind that this type of behavior is their charming way of trying to collect.

Make sure you keep records of all correspondence with them and seek the help of an attorney if need be. Once it’s been made clear that you are not responsible for the debt and the estate is insolvent, the continued contact from the collection agency is harassment and you have rights. The most important thing is that you stand up for yourself and challenge them if you think they’re wrong. They’re trained to collect and sometimes that may be from those who aren’t even responsible for the debt if they can bully them enough.

Where this gets a little hairy is in community property states. Generally, any assets accumulated during marriage are considered joint property under the law of community property states. In some cases, this is true for debts as well. The other problem is that each community property state has their own variation of the rules when it comes to this, so there’s no one answer for all of them. It’s possible that if a spouse runs up credit card debt, the other could be responsible for it when the spouse passes away. You’ll want to consult your attorney when the time comes to know for sure.

On the plus side, there are certain assets that don’t pass through probate and so the executor can’t use those to pay debts. Things like your 401(k) and IRAs, which are federally protected, go to the named beneficiaries and the credit card companies can’t do anything about it.

Insurance is a little different. It passes outside the estate, so the executor can’t use it to pay bills; however, depending on the state that you live it, you may be required to use it to pay off debts, it all depends on the rules. I can tell you that Texas is a weird state. It’s a community property state, but here, if you don’t want to pay your bills, you don’t have to. Collectors can’t take you to court and they have to accept whatever payment you send them, even if its $5 a month. I don’t know if they’ll be changing the rules on that with the credit crisis, but for the time being that’s how it works. But, don’t worry, that type of behavior still affects someone’s credit report.

When it comes to your house, most states allow that to pass to a family member without any issue, but again it all depends. You’ll have to consult an attorney to know for sure, but it passes outside of the estate, so usually you don’t have to.

Prepare to be hounded!

Like I said, collectors are trained to collect and will often use all manner of disturbing tactics to try and get a payment from you. Don’t back down and don’t let them bully you. If you’re not responsible for the debt, then get an attorney to help you. If they send anything to your credit report, write a letter to the Office of the Comptroller of the Currency (OCC) and explain the situation. They’ve had to step in many a time to get a collection agency to back off.

In the end, it’s best if you do your family a favor and don’t die with a boatload of credit card debt. However, sometimes s**t happens. Have a contingency plan in place for their peace of mind. It’s hard enough to be grieving, but add them trying to deal with debt and it’s a terrible place to be in. They won’t thank you and despite the fact that they miss you terribly, they may have a few choice expletives being sent to you in the afterlife.

Has anyone had any experience with this? What kind of issues did you run into?

Popularity: 2% [?]

To Cosign Or Not To Cosign: That is the Question

We all know that cosigning a credit card application can be a risky venture – one that doesn’t have a great return on it, either. If the borrower runs up the credit card and then doesn’t pay on time, it not only affects their credit, but ours as well. In addition, we can be held legally responsible for repaying the debt when it comes right down to it.

But, when a family member comes to us and asks for help it can be very hard to say no.

Here are some things that you need to consider before you agree to cosign the application. If they can’t provide an answer to these questions that make sense, then it’s probably a good indication of how responsible they won’t be with the credit card.

• How will they repay the card? Are they working? These questions typically apply to the college student that’s asking for a cosigner. Sometimes they work, but only over the summer, and sometimes not at all so they can focus strictly on their studies. But, signing your name to their credit card application should be considered very carefully, especially if they’re not working. If there’s no income and you’re paying the bills, then you have to consider that you’ll be paying the bill, whatever it is. If it’s a family member just requesting help, the questions still apply. You certainly don’t want to add their bills to your own, so make sure they can truly afford to make any payments they incur before you agree to help them.

• Has the individual handled credit before? Find out whether the person you’re considering cosigning for has ever handled credit before – be it through a credit card or through a loan. Look to see how they handled their past credit. If they’ve handled past credit poorly, how long ago was the infraction? In this instance, you have to think like a lender and determine what kind of risk this person presents to you and your credit. If the credit blunder was recent and they seem a bit risky, I’d recommend not cosigning for them until they improve their habits…family or not.

• Why do they want the credit card? The reason for wanting the credit card could be a major indicator of how the person intends to use the card. There are lots of reasons people want credit cards, but only a handful of good reasons. Make sure you probe them carefully to get to the real reason for wanting one. A trip to Rome over spring break to hang out with their friends is not a good reason for a credit card and something you should not put your name on. If they want it just for emergency purposes, but you’re still not sure, I’d recommend saying no and helping them set up a savings account to put money aside for emergencies. To be honest, I’d probably recommend this option for just about any reason that someone wanted me to cosign for them, but that’s just me.

• What’s their driving record like? A bit of a weird question, I know. But here’s the thing, if the person requesting your help has racked up a ton of traffic tickets, been cited for reckless driving or other irresponsible behaviors behind the wheel, or been in multiple accidents, it could be an indicator of how they will handle the credit card. Such reckless behavior generally translates to other facets of their life, including their finances, so it may be a good idea to forego becoming a cosigner for someone like this.

These questions are a great starting point to determine the risk factor involved with cosigning a credit card application. When someone comes to you and asks for your help, they are giving you the right to pry into some of these personal matters, and you should do so because it is your credit on the line. If they balk at the idea of answering your questions, then tell them to seek help somewhere else. It’s not a matter of being mean or spiteful, it’s simply a matter of taking care of your credit and finances.

Have you ever considered cosigning for someone? How did that go? Did you ask any questions, or did you just go along with the process?

Popularity: 5% [?]

8 Tips: Handling Credit Card Debt During a Divorce

Going through a divorce is never pleasant – as Jonathan referred to it in an earlier post, it’s excruciating. In said earlier post, he talked about the fact that credit card debt and divorce don’t mix and why. I’m going to piggyback on that post and talk about 8 tips to help you divide that debt up with the least amount of pain and annoyance as possible. To refresh your memory, you can read Jonathan’s post here.

Tip # 1: Get your own credit card…now!

If divorce is imminent then you’ll want to start making preparations now. Divorces can ruin people’s credit, so it’s best to get your individual cards while you still have a decent score, just in case the divorce proceedings get a little messy. Besides, having you own card will make it easier to transfer your portion of the debt later on.

Tip # 2: Take an inventory of all the cards that are jointly held.

You don’t want any nasty surprises later on. Start looking at the financial picture now, while you’re still on speaking terms with the soon-to-be spouse. Go through your wallet and list the credit cards, then – as Jonathan suggested – pull a copy of your credit report to make sure that the cards are listed as open in both of your names. This will be important later on should your spouse try to say you owe jointly on a debt that is solely in their name. Keep all records!

Tip # 3: Call the credit card companies for up-to-date information.

Make a list of what is owed and the interest rates. Depending on where you are in the divorce proceedings, you may be able to freeze the card from further activity until everything is final. Check with your card company to see if this is an option. You don’t want your spouse running up the credit card just before a divorce and you being held partially responsible.

Tip # 4: Try to discuss how to handle the debt with your spouse.

I know that during a divorce sometimes there are bitter feelings and it can be hard to talk to the other person. However, an effort must be made to decide how to handle the debt. Discuss all of the options available. One of the easiest ways is to use any extra cash from a home equity to pay off the debt. When you sell the house, that debt can be repaid and then any remaining funds can be split between the two of you. However, if that isn’t an option then discuss how the debt will be split and transfer it to your individual cards. Once that’s done, close the joint account. It will be much easier and less of a hassle to resolve the issue yourselves. If the courts have to get involved, it could cause problems for you both later down the line.

Tip # 5: If you can’t resolve the debt peacefully, get a mediator.

This can often be a rather expensive option, and one more debt on the list of things to divide. However, if you find that you and the ex can’t be civil, this may be the only option.

Tip # 6: Keep an eye on your credit reports.

During a divorce it may be very beneficial to you keep up with what’s being reported about you to the credit bureaus. You’ll want to make sure no new accounts are being opened in your name, and that none of the old joint accounts have been reestablished and are now being used. I recommend getting a score watch program – I’m a fan of MyFico – and keeping that through the divorce proceedings and for as long as you feel is necessary thereafter.

Tip # 7: Make sure you change your address.

The ideal situation would be to sell the house and split the earnings; however, in many instances one spouse or the other will get to keep the house. In this case, if it’s you that is moving out make sure that you change your address with your creditors. Be sure to file an address change with the post office, but be proactive when it comes to your credit cards. You’re not likely to be told that mail is showing up at your old home, and you’re giving the ex access to a personal part of your new life. Save yourself a headache!

Tip # 8: Follow up and follow through!

If you work in the service industry, you understand the importance of this piece of advice. If you want customers to trust you and your product, you have to follow up and make sure that what you say will happen, happens. A divorce is no different in that sense. If you and your ex agree to a plan, then follow up and make sure it happens until the debt is paid off. If you just absolutely do not want to contact you ex, have your lawyer follow up with them. However, it’s your credit score on the line if the debt doesn’t get paid – even with a court order, it’s a pain to get the credit card companies to update information. It’s much easier to stick to the plan and get it over with.

And there you have it folks. 8 tips to help you get through your debt while suffering a divorce. No one is saying this will be easy – a divorce never is, even if the feelings for one another have dissipated. But, on this, you must be levelheaded and aware of your surroundings if you hope to have your credit come out intact. Starting over is hard enough, but doing so with bad credit is an uphill battle.

Popularity: 9% [?]

Debt Collector’s Getting Their Day In Court

Sometimes our legal system amazes me. I mean, who would have thought that a woman could sue McDonald’s for burning herself with hot coffee? I don’t think many people believe in the ‘innocent until proven guilty’ mantra as evidenced by the good number of innocent people that go to jail, only to be determined later that they are, in fact innocent. In short, I think the whole justice system is in need of an overhaul.

In Chicago alone, more than 119,000 civil lawsuits against alleged debtors are swamping the courtrooms. It has been estimated that at least half will result in judgments allowing debt collectors to garnish wages, seize bank accounts, and file liens against homes - all because people are falling behind during the high prices and credit crunch that is affecting the nation.

To be sure, these people still owe the money. I don’t think anyone is suggesting that they don’t. But I have a hard time seeing the justice in garnishing a portion of a retiree’s social security - the only money they live on - for debt repayment. Retirees on limited income are getting hit hardest because of higher medical bills. When they fall behind on their bills due to medical problems, there should be a different alternative than simply taking them to court.

Even more interesting is that there are cases making it into the courtrooms for debts that have already been paid. A resident of Chicago started receiving phone calls from a debt collector and their law firm demanding payment or they would take her to court. She repeatedly told them that the debt had been settled the previous year AND she faxed over the release letter as proof. But, they took her to court anyway.

Apparently, the woman and her lawyer didn’t show up in court because they had been assured by the debt collectors that they would investigate her complaint, but because they weren’t there, the judgment was awarded against her - a move that would allow them to garnish 15% of her wages. Now, it seems to me that the law firm representing this company should have been aware of the “complaint,” but the way they phrased it was that the judgment was an innocent mistake and that they had vacated the judgment and dismissed the suit when they learned of the complaint.

Innocent for whom? Certainly not for the woman who paid the debt off a year earlier. The law firm should have practiced due diligence to make sure that the files were in order - particularly since they also received copies of the release letter. That wasn’t an innocent mistake; that was a waste of taxpayer’s dollars for not having their ducks in a row.

This seems to be a reflection of things to come as the credit crisis gets worse; the remnants of easy credit gone sour and a collections industry determined to get paid. But at what point does the justice system say enough is enough? The government is talking about bailing out lenders who just handed out money to people who weren’t qualified. If such a program exists for lenders, then something similar should be available to consumers.

I’m not suggesting that all debts should be wiped clean. And I’m not suggesting that this type of program be available for everyone. Deadbeats who just don’t want to pay their bill can have their wages garnished as far as I’m concerned. But, those that have experienced job loss, medical issues, or something along those lines should have a system in place where they can seek help. I think a type of structured settlement where the individuals can have late fees and things reduced to help lower the debt would be a start.

Now, along with that, I think these people should be required to take credit counseling classes. Part of the problem is their spending patterns and not having any emergency fund to fall back on. The economy is not solely to blame for everyone’s financial problems.

I’d love to hear your thoughts on this. Is it justice to have that many lawsuits clogging the system? Am I wrong in my opinion that if the government is going to help lenders, they should institute a program to help consumers?

Popularity: 13% [?]

Are Your Friends Putting You in Debt?

We’ve all been to those dinners with friends where we feel obligated to pick up the tab, or they order fillet mignon and we get a side salad. It’s tough when you’re in different financial situations, but sometimes we have to ask ourselves if we’re in debt because of our friends.

I know I have to catch myself sometimes. I have friends at both ends of the spectrum and sometimes when I’m with my friends who may make a little more than me, I tend to want to spend a lot of money. On the flipside, I’m always catching myself trying to talk the other end of the spectrum of friends into having lunch or dinner, or simply going out to a movie. I have to remind myself that they can’t afford it.

If you’re friends are causing you to stay in debt, then there are some things you can do.

1.) Suggest cheaper alternatives.

When the topic of which restaurant you should go to comes up, suggest a cheaper alternative to the normal high-priced ones. You may have to simply let your friends know that you can’t afford the pricey ones they like all the time.

2.) Just say no.

Sometimes you’re just going to have to say no. It’s never fun to be the responsible one, especially when everyone wants to take an impromptu trip to Vegas. But, the fact is, sometimes we just can’t keep up with them and we have to draw the line.

3.) Set yourself a limit.

If you decide to go out with your well-to-do friends, be sure to set yourself a limit and stick to it. Once you’ve spent that money, you’re done. Either call it a night or stick around for the laughs, but be sure you don’t leave yourself room for temptation. Don’t take any more cash than what you plan to spend and don’t offer to pay someone else’s way.

These are some of the easiest methods to save money around friends. You just have to remember that friends are friends no matter how much money you spend. Keep that firmly in mind when going out on the town and you’ll find it much easier to save money and still enjoy their company.

Do you have any friends that could be causing you debt?

Popularity: 11% [?]

Surprising Purchases that Put People In Debt

Ok, technically these aren’t really surprising to me, but maybe some of you have never thought of them before. Or maybe you know someone who is now in credit card debt to their ears because of it. This post piggybacks off of Jonathan’s “Why do Get Into Debt?“, so if you haven’t read it, be sure to check it out!

Job Loss

One of the number one reasons I’ve heard why people are in credit card debt is because of job loss. Some of them had run through their emergency funds and then fell back on credit cards; however the majority of folks in this position didn’t have an emergency fund to begin with.

Medical Expenses

I wasn’t too surprised to hear that, particularly with the fact that medical insurance has skyrocketed and many people can’t afford the insurance. Instead they’re putting their bills on credit cards.

A Daughter’s Wedding

I was actually a little surprised with this one, only because I had never even considered how I would pay for a wedding when the day comes. I, like many other people, have absolutely no savings for the big day and I don’t think my dad does either. So what is a proud father to do? Apparently put it on his credit card. There’s no real solution to this, either. I mean it’s nice to save for your daughter’s wedding, but the truth is, there are so many other things to save for that most people put this on the back burner.

Starting a Business

Being denied a loan by the bank is a tough blow when you’re trying to start a business. It may not have had anything to do with your credit either. It may have simply been because you didn’t have any money of your own to include. Sound strange? Don’t worry, you’re not alone. Banks are pretty conservative when it comes to lending start-up businesses money, and with good reason; 50% of start-ups close their doors within two years of opening. When you go to a bank for money, they want to see your commitment to making the business work and will require you to invest anywhere from 20-50% of your own money, depending on the risk level of the business. The riskier the business, the more they ask you to put down. And that 50% is just a guideline, some will ask for more.

So business owner’s who either can’t get approved for a loan or need to put some equity into the business tend to use credit cards. It’s tough when you’re just starting out, but if you can avoid using your credit card, I highly recommend it! Look into small business opportunities with the Small Business Administration (SBA) in your area. Most SBA loans will guarantee the bank 80% of your loan, meaning if you default the bank doesn’t take a total loss. They even have special programs for women and minorities seeking loans. However, they do require excellent credit in this case because they are guaranteeing the loan. Still, it’s worth looking into.

Furniture

This falls into the category of ‘instant gratification’ for most folks. If you’ve already got a furniture set, then save the money until you have enough for the newer set you want. It’s usually not a dire need to have that new set, yet because we want what we want when we want it, people go into debt over furniture. Granted, this usually isn’t something that runs most people anymore than a few thousand dollars, but still. That’s a lot of interest if you have other debts when you could have waited and saved, then paid no interest. To each their own, but furniture isn’t something I think should be put on credit.

Traffic/Parking/Warrant Tickets and Fines

I have a friend who went into serious debt because of this, and they weren’t even hers. Unfortunately it was either pay them or the significant other was going to jail. Most people don’t like to see their loved ones suffer - or hauled off to jail, for that matter - so they pony up the dough. But when they don’t have the funds, they turn to credit cards. Another one to add to this category is bail bonds. I know a customer that put $15,000 on a credit card to cover a bond when the guy split. It’s not a fun situation, so really consider the consequences when it’s someone else’s ticket you’re paying.

What other surprising purchases or payments can you think of that put people in credit card debt?

Popularity: 15% [?]

What I Think of Dave Ramsey

I get asked about Dave Ramsey a lot. Several people come into the credit union spouting the words of Dave Ramsey and then ask if we know who he is. Well, any banker worth their salt should know who he is. He’s only made our lives more difficult when it comes to educating people about the proper way to handle debt. But, recent conversations have prompted me to address the matter of Dave Ramsey and the debt snowball on this forum, so here goes:

My opinion of Dave Ramsey is that he’s horrible with math and probably not so good at psychology, either.

I’ve posted before on the fact that I don’t like the snowball method. I understand the reason for it existing, but I don’t think it makes good financial sense to teach people a method that costs them more money just because it may make them feel better.

I like the idea of taking things slow to achieve financial success, which is the basis of his 7-step plan; however, I don’t agree with some of his methodology. By the way, just in case anyone isn’t familiar with Dave Ramsey, he’s the guy that invented the debt snowball method, i.e. you pay your debt down in order from the smallest amount to the largest irregardless of interest rate. He has his own radio show and he’s also got a television show somewhere on network TV, but I’ve never seen it. His 7-step process looks like this:

1. $1000 to start an emergency fund
2. Pay off all debt (except the home) using the debt snowball
3. Build 3-6 months of expenses in savings
4. Invest 15% of household income into Roth IRAs and pre-tax retirement accounts
5. College funding for children
6. Pay off home early
7. Build wealth by investing

First and foremost, I’m a firm believer in paying yourself first and continuing to do so even when money’s a little tight. If you don’t, you’ll never find the money to save. Likewise, if you don’t have an emergency fund with 3-6 months expenses in savings, you won’t be making any payments on anything in the event something happens with your job. With that said, one and three should be combined.

I’ve already mentioned that I don’t like the debt snowball method, so for me Ramsey’s number two is ridiculous. As a financial “expert,” he should be teaching people the right way to manage their debts and offer advice on how to overcome their discouragement with regard to paying off those high interest debts. He shouldn’t be offering easy-out solutions that don’t teach people the value of working to pay down their debts. Beyond that, I’m just opposed to giving financial advice that costs people more money.

I think what people need to do is sit down and work a side by side comparison of the debt snowball and the traditional methods. Compare the time it takes to pay everything off and the amount of money spent at the end. Once they see the numbers in black and white, I think most people will fully begin to understand why so many financial experts are against the debt snowball. However, I realize that for some, this is the only method they’ll use and there’s no changing their minds. As you wish, but you’re still paying more money than you should and I imagine there’s other things you’d like to be doing with that money!

Investing into pre-tax retirement accounts and Roth IRAs is an important step for taking care of your retirement needs, so I’m good with number four. Your retirement is up to you as no one else will take care of it. I will add that this should not be neglected while you’re paying down your debts. And to finish off the list, the last three are fine with me as well.

So that makes my list a six-step process that looks like this:

1. Build a savings account with 3-6 months worth of expenses
2. Pay off all debt (except the home) using the traditional method
3. Invest 15% of household income into Roth IRAs and pre-tax retirement accounts - with the caveat that this is not neglected at any point in the overall process
4. College funding for children
5. Pay off home early
6. Build wealth by investing - be sure to diversify your portfolio

I was talking to a member today who was a huge fan of Dave Ramsey. He asked me if I knew who he was and I said yes. He went on about how his advice was great and he’s working to pay off all of his debts, etc. He was even opening an account for his emergency fund and dropped about three months worth of expenses in it. Then he asked what I thought…Something you have to understand about me is that I don’t like to sugarcoat stuff, especially when it comes to finances. I’m a bit like Suze Orman in that I tell it like it is. People need to hear the truth.

So, I told the member that I’m not a fan of Ramsey’s, but that I was glad he was opening the savings account. He asked my why I didn’t like Ramsey. I told him everything that I’ve said here and then I told him I would show him. So we sat down with his debts and worked the numbers both ways. If he did the debt snowball method it would take him 29 months to pay back his debts and it would cost him $8945 in finance charges. If he paid his debts the traditional method it would take him 27 months and only cost him $7988. That’s a difference of $957. So, to me it’s clearly obvious that the traditional method was better. I don’t think he’d ever considered it that way before because he seemed blown away. We talked about some other options to shorten the time span and save even more on the interest all of which he declined, but at least he walked away with better options. And that’s what a financial expert should do - they give you options that help save you time and money. They offer advice on areas you could improve. They DO NOT give you easy-out solutions that cost you more money in the long run!

Ok, so let’s have some friendly bipartisan debate here:

For those who side with Ramsey, why do you like the debt snowball method? For those who agree with me, what’s your biggest objection to it?

Popularity: 56% [?]

7 Ways to Stay in Debt Forever

For Dillon Debton, it was love at first sight. He pulled the envelope out of the mailbox and held it up to the gleaming sunlight. His name marched across the front of the envelope in bold black letters and “special offer inside” was scrawled in red script. A special offer for him? His heart leapt as he raced to the house. His trembling fingers opened the envelope to reveal the contents: a letter offering him a $5000 line of credit and a low introductory interest rate for the first six months!

Dillon snatched a pen and filled out the application. He daydreamed of the new possibilities that were opening up to him. With $5000 he could buy snazzy new clothes; he could purchase that high-definition big screen TV; he could even buy tickets to the Barry Manilow concert! He stuffed the application into the postage-paid envelope and sent it on its way.

Dillon watched the mailbox every day until it finally came: his plastic ticket to fun had arrived. Dillon took his beloved plastic everywhere he went. He bought lunch at fancy restaurants and bought gizmos and gadgets. He and his plastic stuck together like a wad of gum sticks to the underside of a school bus seat.

About a month later, Dillon received his first bill. He opened it and laughed out loud as he saw all the things he had bought and the stuff he had done. Now he actually had a life! Man, he thought, the chicks will really dig me now! He would now have a monthly reminder of what a groovy man he had become. He smiled as he looked at the small minimum payment.

Mr. Debton loved his plastic card and he wanted to have it as his constant companion. Dillon took out a piece of paper and made a list of how he could insure his monthly “reminder” of his absolute coolness would continue to make its appearance.

7 Ways to Stay in Debt Forever

1- Use the credit card at every opportunity. After all, he could really rack up some bonus points – maybe he could earn enough for some free french fries or something.

2- Only make the minimum payment. He knew that bill would keep on coming, month after month, if he just paid the minimum payment.

3- Send payments late. At $30 a pop, those late fees could really add up fast!

4- Use the cash advance option - a lot. With a cost of $25 and a 25% interest rate on the money advanced, that balance might not ever go away.

5- Pay by phone. He could get a $10 fee every time he paid by phone.

6- Go over the limit. Another fee! A whopping $39 for going over the limit.

7- QVC, The Shopping Network, late-night infomercials – now you’re talking, baby!

Day by day, month by month, Mr. Debton’s balance grew and grew as his wallet shrank down to almost nothing. Suddenly, he saw the light: his plastic “friend” wasn’t giving him a better quality of life; it was robbing him of it. Suddenly, he didn’t feel the love for the plastic anymore.

Dillon pondered his relationship with his card as he sharpened the large kitchen shears. He really didn’t like how the fun things he had bought with his card had worn out or had broken months ago, yet he would still be paying for them for years and years. His credit limit was maxed and so he couldn’t buy any more fun.

Dillon pulled the plastic out of his wallet and held it for one brief moment before chopping it to bits. He tossed the sad remains into the trash, walked away, and never looked back.

Popularity: 12% [?]

Auctioning Debt to the Highest Bidder?

If you haven’t heard the news buzzing around about auctioning off debt on eBay, allow me to fill you in. A woman in Erie, PA tried to auction off her debt, totaling $103,245.11. She listed out what her debts were and offered the winning bidder the choice of keeping her house and car. She even went so far as to inform the bidders that they could turn around and sell her possessions to get a return on their money. Very thoughtful of her, wasn’t it?

I give this woman points for creativity, but I have to say, I find it incredibly irresponsible of her to attempt an auction of her debts. Number one, what is that telling her children? While she likely didn’t intend for it to impart a negative lesson, the whole ordeal does suggest that it’s ok to run up your debt until you can no longer afford it because other people will take care of it for you. Number two, this was her debt and she’s trying to give it to someone else. I guess she missed the statistic that America is $900+ billion dollars in debt with the average American family contributing well over $8000 to that debt. Other people have their own problems to worry about.

But, this got me to thinking about debt and how we handle it in general. So, I called up my grandparents and asked what they thought. My grandmother snorted and said that in her day you didn’t talk about your debts with other people. You saved and penny-pinched until you could pay it off. You made arrangements with your debtors and you stuck to the agreement, plain and simple. My grandfather put his two cents in, as well. He said that he believed it to be a difference of generations. His generation didn’t really run up a lot of credit because they usually just paid cash for everything. On the off chance that there was quite a bit of debt built up, most people took a second job or did odd jobs until they paid it off. In today’s society, people just get bankruptcies.

And that brings me to my next issue with people and their debts. Bankruptcies!

It is my firm belief that there are VERY limited situations in which a bankruptcy is appropriate. A single mother working three jobs with medical bills stacking up I would say is a legitimate reason to have a bankruptcy. However, a friend of mine, also in the banking industry, has a couple that she’s worked with on various things for over 15 years. Since my friend has known this couple they have filed two bankruptcies. She got curious one day and asked them why they had filed twice when they seemed to be making enough money to cover their bills. They told her they had filed every 7 years since they were 30 because they were working the system.

Every 7 years this couple got rid of their debt and never had to pay it back (mind you, this was before the new bankruptcy laws) and they’d get new credit within five years; completely free to run it up in two years time only to file and start the process all over again. That’s just irresponsible and somewhat greedy, if you want to know the truth. There’s no good reason to file a bankruptcy if you don’t have to. And this couple could have been fairly well off. The husband was an engineer and the wife was an RN at a major hospital. Frankly, I rather like the new bankruptcy laws. If responsible individuals have to pay back their debts, so should everyone else. I’m ok with some sort of structured settlement to reduce fees and the like. Everyone needs a break sometimes. I’m not ok with people working the system to run up tens of thousands of dollars in debt and then just get to start all over again every 7 years, never paying anything back and keeping everything they’ve bought.

Call me old-fashioned but I believe people should be held accountable for their debts. I believe they should have to struggle and learn because only then do they grow as individuals. People who struggle through the hard times have a better understanding and appreciation for the things they have in life. Offering these easy-out solutions to their financial problems doesn’t help anyone in the long run.

Ok, stepping down from the soapbox, now.

Tell us what you think. Are these solutions an appropriate way to handle your debts?

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Arm your Children with Financial Knowledge

There’s a saying that goes, “It’s not how much you make, it’s how much you keep.” My kids are pretty creative when it comes to making money – they have the entrepreneurial American spirit. However, I would like them to learn how to keep their money – or better yet – how to make the money they make grow.

In today’s world, there’s not a whole lot of teaching about how to keep money. We are surrounded by advertisements enticing us to buy the latest and greatest gizmos. Kids are often the most targeted. Think about it: Companies know that teens have jobs and they don’t yet have the financial responsibilities of an adult. They have money to spend- and if you’ve spent any time at a shopping mall, you see the results of that advertising: teens with armloads of shopping bags. Lured. Baited. Caught. Trapped.

So much stuff to buy

The “keep up with the Jones’s” attitude is usually attributed to adults, but think of what children face each day. Your son goes to baseball practice and Gerald Gymsocks shows up with a new professional series mitt. The next day, half the team has a new mitt and a few of the kids even have expensive new cleats. Your son misses a catch and claims that if he only had “that new mitt”, or “if he wasn’t wearing those crummy old cleats” he wouldn’t have missed the ball. He might even get teased – and it doesn’t end there.

There is so much stuff that kids want to buy: cell phones, iPods, gaming systems, expensive name brand clothing, and as they get older, cars. We need to teach our children the importance of being satisfied with what they have so they can save for the future. If we don’t, they will get caught up in the “keep up with the Jones’s – kid version” and will want to spend every cent they get. If our children are armed with financial knowledge, they will be better prepared to withstand peer pressure - and might even start to feel sorry for their friends who are caught up in spending all their money on “stuff.”

The power of compound interest

Teach your children about the power of compound interest to help them understand the importance of saving early. The earlier children learn how to use this powerful tool, the more it can work in their favor. For instance, if thirteen-year-old Sally Savesalot puts $5,000 into a savings plan that earns her 8% interest, in twenty-years, that $5,000 will have grown to $23,305 – without putting in another penny! If the account stays at 8%, by the time Sally is sixty-five, that $5,000 will be worth $234, 508!

On the other hand, Patty Procrastinator doesn’t contribute to a savings account until she is twenty-six-years-old. Patty earns $5,000 for winning a Spam-eating contest and puts the money into an account at 8%, and leaves it there until she is sixty-five-years-old. When she is ready to withdraw the money, it has grown to $100,576 – which is a lot of money. However, Sally had earned more than double that amount with the same initial investment! If children can learn and understand the advantages of saving early – they can have the power of compound interest on their side.

Children also need to understand the other side of compound interest. I frequently make offhand comments to my kids when I see advertisements for “buy now, pay later.” I always have to add, “Yes, you can have it now, but it will take you forever to pay it off, and you’ll end up paying at least double or triple the amount.” My kids have heard me say it plenty – and I don’t think they will ever want to buy now, pay later.

Financial knowledge early equals more financial security in the future

Sure, our kids will still want to buy those cool gizmos and gadgets every once in awhile – but they will also know that gizmos and gadgets break, go out of style, or wear out. If our children are armed with financial knowledge, they will be less tempted to buy stuff. They will be motivated to invest their money in order to secure a better financial future.

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