Do Not Spend Your Tax Refund

If you received a tax refund this year please do not spend the money.  The first and best option is to save the money for a rainy day.  Most financial advisers recommend saving at least six months worth of net income in the form of savings for that proverbial rainy day.  If you don’t have this much money saved start saving now.

If you already have plenty of money in your savings account consider opening a Roth or traditional IRA.  These retirement accounts will help you save money and possibly reduce your taxable income.  If you strategize appropriately they will help you pay less in taxes once you do retire.  For more information see:

http://www.investopedia.com/articles/retirement/03/012203.asp.

Of course, if you have a significant amount of unsecured debt you MUST create a plan to pay off this type of debt before you even consider saving money, either in a traditional savings account or for retirement.  Unsecured debt (credit cards etc.) will continue to hold you back financially until you pay them off… completely!  If you have debt use your task refund to either pay off your debt completely or create a plan to pay it off within a year.  If you cannot pay off your unsecured debt within two years on your own consider utilizing the services of a reputable Consumer Credit Counseling Service (CCCS) or Debt Settlement company.

Technorati Tags: tax refund, taxes, saving, IRA, Roth IRA, retirement, consumer credit counseling, debt settlement, budgeting, save

Cut Up Your Credit Cards – Now!

Credit cards, personal loans, and any form of unsecured credit is pure evil.  The average American consumer does not need credit cards or ready access to unsecured credit.  Credit cards peddled at college campuses truly are the “starter drug” that gets consumers hooked on living on credit. 

Advertising for credit reports and credit monitoring services simply perpetuate this belief that one’s credit score (aka FICO score) is the one and only indication of creditworthiness.  The invention of the credit card (unsecured line of credit) and the FICO score have become the bane of many Americans’ existence.  Hardly a day goes by where I don’t see a TV commercial for free credit reports or free credit reporting services.  Hardly free, these services continue to increase awareness in consumers’ minds that their credit score is the most important financial aspect of their lives.  Wrong!

The single most important aspect of one’s financial position is life is their ability to SAVE money; not spend it.  The next time you get a paycheck don’t think about what you can buy.  Rather, think about how much you can save.  Set worthy financial goals for yourself such as paying cash for your car.  Do NOT finance consumers goods… period.  These days, the only item you should ever need to finance is your home.  This is a relatively reasonable purchase to finance because property values have historically increased, there are tax benefits, and as a result it is considered an asset.  Unless you are business owner, you should not have to finance anything else.

Just spend a moment thinking about how your parent’s and/or grandparent’s generation made it through life.  I guarantee you they did not leverage every penny they earned financing furniture, appliances, tv’s, cars, homes etc.  Next time you have a family get together ask the oldest living member of your family how they managed/manage their finances.

Technorati Tags: credit report, experian, equifax, transunion, free credit report, credit card debt, debt settlement, consumer credit counseling, FICO, financing, home loan, mortgage

The FTC Fights Back

In an effort to educate consumers the FTC (Federal Trade Commission) launched a campaign today debunking the silly and false advertising associated with the television ads for FreeCreditReport.com.  The only website for consumers to legitimately obtain their credit report for free is found at www.annualcreditreport.com.

Technorati Tags: ftc, federal trade commission, credit report, experian, equifax, transunion, free credit report

Can I Avoid Bankruptcy?

Often times this question simply boils down to cash flow.   If one has enough net income every month to pay for their living expenses and there’s a little left over for one’s creditors then bankruptcy might be avoided.

If you are struggling to make your monthly payments to your creditors it’s time to take a hard look at your budget.  Take a few moments to prepare a simple budget analysis to determine if you have sufficient cash flow to make ends meet.  If you’re running negative then it may be time to arrange for a free consultation with a qualified bankruptcy attorney.  However, if you have a little income left over to work with then bankruptcy could be avoided.  For more information on budgeting see: “Can You Afford A Debt Settlement Program”.

Qualifying for bankruptcy can be tough.  There are several means tests that a qualified bankruptcy attorney will perform in order to determine if you should file either Chapter 7 or Chapter 13 bankruptcy.  If you actually qualify for bankruptcy you are in essence rescinding most of your control over your finances.  Additionally, the cost of filing usually starts at about $1,500 and goes up from there depending on the complexity of your circumstances.  See http://www.provanta.com/bankruptcy/.

Take a moment to determine if you really are Living Beyond Your Means.  If you make some time now to examine your financial circumstances you may be able to avoid impending financial ruin.  Don’t wait until it’s too late to to take a hard look at your finances.  It may be painful but once you do you will be that much closer to experiencing financial freedom.  You may have several options from CCCS (consumer credit counseling services), to debt settlement, to bankruptcy.  However, if you wait too long you may ultimately limit yourself to the last and most painful option of bankruptcy.

Provanta is not a law firm and none of our employees or contractors are attorneys.  However, if you are interested in determining if you qualify for our debt settlement program please feel free to contact us for a consultation.

Technorati Tags: bankruptcy alternatives, alternatives to bankruptcy, debt settlement, debt forgiveness, budgeting, budget, bankruptcy attorney

Does Your Credit Score Matter?

Almost every other day I see those goofy commercials on TV for your free credit report.  You know, the ones where some guy in a pirate hat is singing and playing his guitar.  Quite amusing to say the least but quite misleading on several levels. 

The advertising on TV and radio for “free” credit reports often comes at a price.  They often give you your credit report in exchange for signing you up for a monthly credit monitoring service that you have to pay for.  Not free in the least bit.  Several years ago the Government supported the creation of a site where you can obtain all three of your credit reports (Equifax, Experian, and Transunion) for FREE once a year: www.annualcreditreport.com.  Or, you can call the toll free number to order your reports by mail: 1-877-322-8228.

More important than actually finding the right place to get your credit report is actually determining whether or not you need to in the first place.  The lending industry would love for all American consumers to believe that their financial livelihood hinges solely on knowing what’s on their credit report and what their credit score is.  Constant advertising for services providing this information doesn’t help.  In reality, most lenders are more concerned with your debt-to-income ratio than your actual credit/FICO score.  (FICO is the credit score used by most lenders and is generated by the Fair Isaac company.  See www.myfico.com for more information on how your credit score is actually calculated).

If you have a large amount of revolving unsecured debt (primarily credit cards and personal loans) then you have a problem that far outweighs concern for your credit score.  Your credit score will most likely continue to decline as the years pass even if you are making your minimum payments every month.  The only way to see your credit score improve in this situation is to pay off your debt as fast as you can.  To find out how fast it will take you to pay off your debt use this calculator: http://www.bankrate.com/brm/calc/creditcardpay.asp.  If you find that it will take more than 3 years to pay off your debt find help NOW!  Don’t wait around thinking that you can pay off your debt on your own.

Even if you have obtained lower interest rates from your creditors or managed to get them to accept lower payments it is only a short-term solution.  These types of arrangements typically only last 3 – 12 months and then you’re back in the same boat.

For unsecured accounts such as credit cards the terms of the loans are quite arbitrary.  Your creditor can increase your payment or your interest at just about any point in time.  If they believe that you pose a greater risk and if your creditworthiness decreases they may begin to limit your available credit and increase your APR.  You might have low interest now but ask yourself how long you think that’s going to last.

With so many banks going out of business, merging, or being acquired by other banks, the terms of  your original credit card contract may become void.  Any time your creditor changes you will receive a new contract with potentially very different terms than your previous one.

Don’t get hung up on this notion that your credit score is all important.  If you have a large amount of unsecured debt getting out of debt is far more important.  Focus on this and before you know it you’ll be in a position where you can rebuild financially.

Technorati Tags: FICO score, credit score, credit report, experian, transunion, equifax

The Importance of Commitment

After 33 months of being in Provanta’s Debt Settlement Program, one of clients is finally able to be free of his credit card debt.

Our client’s original estimated program term was 29 months.  However, he continued to struggle with his income and expenses after enrollment.  Six of his regularly scheduled monthly deposits were returned as non-sufficient funds (NSF) by his bank.  He has also made special requests to skip or reduce his deposits on 3 other occasions.

We take these types of problems very seriously.  If a client continues to demonstrate an inability to make his monthly deposits as scheduled, we may consider closing the client’s debt settlement program.  This is not to be inconsiderate or unsympathetic to our client’s on going financial problems but to encourage them to look for different options that may suit them better.  Our debt settlement program simply cannot be effective if the client cannot afford it.

We never had to consider closing this particular client’s program despite some of his financial problems.  He was always in communication with us immediately whenever there was a issue.  He made efforts to make up the NSFs or skipped deposits.  He was honest about his situation and he understood why this was a serious matter.  He made all efforts necessary to continue with the program and we stayed committed to help him and to make necessary adjustments to our settlement strategy to accommodate his situation.

In the end, his program term extended only 4 months longer than originally anticipated and we were able to settle his accounts for 41% of the total balance owed.

Ref. 1539

S&P/Case-Shiller Home Price Indices Fall

On September 30th data released by S&P for the S&P/Case-Shiller Home Price Indices showed continued decline in home prices among almost all major US cities measured by the indices.  

Las Vegas has continued to be one of the hardest hit cities with an annual decline of 29.9%.  All city/metro indices show an annual decline ranging from 29.9% in Las Vegas to 1.8% in Charlotte.

David M. Blitzer, the Chairman of the Index Committe at Standard & Poor’s indicated that there was no evidence of a bottom to the current decline.

For the complete report visit Standard & Poor’s website or click here.

My personal take on the current situation is that it will be a solid two years before we see any sign of recovery in the housing market.  Financial and housing sector woes have create ripples throughout our entire economy that are now just starting to reach other sectors.  Retail and manufacturing businesses are already beginning to feel the effect of reduced consumer spending.  Prices will go up and jobs will continue to be lost.  

Let’s take some cues from our grandparents.  Maybe it’s time for a heart-to-heart talk on how they weathered the storm during the great depression.  While I do NOT believe we are entering another depression I believe we all have equal responsibility to put our individual financial houses in order.  Now is the time to save, ensure job stability, work harder, and focus on paying off debt.  It would be ludicrous and irresponsible to believe that the legislature alone can remedy the current financial crisis.

Technorati Tags: financial crisis, housing market

Give Yourself an Early Christmas

Yes, it’s October 1st and yes, I did say “Christmas”.  I am ordinarily one of the first to complain about how Christmas decorations seem to promulgate retail establishments sooner-and-sooner with every passing year but this year is different.  Why?  The meltdown in the financial markets and the economy has given everyone in this country the opportunity to take a second look at their personal financial circumstances.  The observed changes to a certain extent effect everyone. 

What does Christmas, the financial sector, and the economy have to do with each other?  Well, as you may or may not know most retailers go “in the black” during the holiday shopping season.  In other words the sales/revenue generated during the holiday season typically predicates whether or not they turn a profit for their fiscal year.  What this means is that they are absolutely dependent on American consumers having disposable income to spend on gifts and the like during the holiday rush.  If Americans don’t spend as they ordinarily would then retailers may suffer, may actually end the year “in the red”, and may not be able to sustain growth during the next fiscal year.  Some may even go out of business.

To this end I am encouraging everyone to start preparing now.  Buy your Christmas gifts a little earlier this year.  Look for sales.  More importantly create a budget for October, November, and December.  Don’t wait until the last minute to load up your credit cards with gifts on December 24th.

The most significant and important gift one can give themselves or their family is a balanced budget.  I realize this is not a very exciting topic but if you work toward this end now then you may actually have a worry free holiday season.  If you currently carry a large amount of revolving unsecured debt on credit cards and personal loans now is absolutely the time to strategize as to how you are going to pay off the debt.  Don’t wait until the new year!  If you cannot balance your budget and cannot pay off your unsecured debt within three to four years on your own then it is time to reach out and look for some professional help.  Investigate your options.  Find a reputable company with a proven track record of success to help you plan on how to eliminate your debt.

Give yourself and your family the ultimate gift this year – financial freedom.

Technorati Tags: debt settlement, consumer credit counseling, budgeting, Christmas, holidays, shopping

Living Beyond Your Means?

A great article was published via Yahoo! Finance on Monday titled “Five Signs That You Are Living Beyond Your Means”.  This article stresses several key factors that many struggling with debt are acutely aware of:

1. Your Credit Score is Below 600
2. You are Saving Less than 5%
3. Your Credit Card Balances are Rising
4. More than 28% of Income Goes To Your House
5. Your Bills are Spiraling Out of Control

What struck me more than any of the other statistics quoted in the article was that the personal savings rate has severely deteriorated over the past couple years.  The following chart was provided based on data from the U.S. Bureau of Economic Analysis.

For the full article provided by Investopedia on Yahoo! Finance click here.

Technorati Tags: personal savings rate, debt settlement, budgeting, economics

When I Grow Up I Want to be in Debt

Does that line sound familiar?  Of course not.  Kids grow up saying things like they want to be a doctor, an astronaut, or a zoo keeper.   No one grows up saying they want to be in debt one day, so why is it that Americans have a combined credit card debt of over $900 billion? 

There are many theories and possible explanations that all have some truth behind them.  One possibility is that most people have simply forgotten the basics of sound financial planning.  Traditional financial planners will tell you that you need to have a reserve emergency fund with enough cash to last you at least six months should something unexpected occur, such as job loss.  If your emergency lasts longer than six months then maybe, just maybe, you will use the little piece of plastic to buy food or pay for utilities-just the absolute bare necessities.  Once you are back on track you do all that you can to rebuild that emergency fund, pay off that credit card, and then put the credit card away so that it will be used only in the next dire emergency.  Yes, this may mean some months of clipping coupons and postponing that vacation, but that is what being financially responsible is all about.   

That was then; this is now.  Credit cards are no longer used just for emergencies.  They are used every day to pay for everything from utility bills and groceries to shoes and vacations.  So how did this happen?  Well, first there’s the convenience factor.  Carrying a credit card is definitely easier than carrying a wad of cash in your wallet.  It makes your purse a little lighter and if your purse gets stolen, you can cancel your credit cards. Cash, on the other hand, cannot be canceled and issued to you again.  Convenience is great.

Second, once you get accustomed to using credit cards to purchase daily needs, the line of demarcation between necessity and want blurs.  For example, food is a necessity.  A $100 per person dinner at the new trendy restaurant is a want.  A credit card can marry the two, such that you can satisfy your basic need and your desire at the same time.  Since credit card use has become a habit, the $100 dinners continue and then voila, and 3 years later you’re still paying for that dinner.  This is great…well, not really.

Does this mean that I believe everyone in debt is in their situation because of poor money management, distaste for cash, and lack of self discipline?  No, of course not.  As I mentioned above, there is not one single answer to explain all of this; rather, there are many factors fueling America’s growing debt problem, including the job market, legislation and credit card companies themselves.   However, I think that if Americans are to start trying to resolve this problem, and more importantly, teach our kids how to avoid putting themselves in this same situation, we all need to go back to the basics of sound financial planning and responsible credit card use as soon as possible. 

Technorati Tags: budgeting, debt problems, American personal debt, financial planning, credit card debt

My Favorite Conversation in May

I had a chance to speak with a lovely older lady last month about our debt settlement program.  

This woman has had a series of misfortunes with her health that affected her work and her income.  She had to move out of her house last year due to a foreclosure, and now she’s at the point of being unsure whether she’ll be able to keep up with her credit card payments.  Despite all of this, she had an upbeat attitude and she made me laugh all the way through our conversation.  She’s a “glass half full” type of gal.

Unfortunately, Provanta could not help her for reasons that I won’t go into.  Instead, we talked about ways to minimize her expenses and I gave her ideas on how to manage her budget.  The most important advice I gave her, the one I give to anyone who wishes to become debt free, is to stop using credit cards. 

She said to me, “I’ll just freeze them.”

I asked what she meant and she replied, “I used to put my credit cards in a big bowl of water, then place the bowl in the freezer.  Whenever I felt the urge to buy something, I would have to wait for the credit cards to defrost, which could take up to a day or even two.  By then, the urge was gone.” 

I still smile whenever I think of her and imagine a bowl of frozen credit cards in her freezer.

(Ref. 1513)

Technorati Tags: budgeting, client hardship, medical hardship, foreclosure

Debt Settlement Programs Can’t Help Everyone

Most companies in the service industry are focused on enrolling as many clients as they can.  Provanta is no different, but we do have to decline requests for enrollment from time to time if debt settlement simply is not a viable option for them. 

A woman who was referred to Provanta through the local Better Business Bureau (who has been kind enough to refer a number of clients) walked into our office last week and asked to speak to someone about our program.  Luckily, I was available to speak with her.  We spent about 45 minutes talking about our services.  I provided her an estimate for her program based on her current statements.  She said enthusiastically that she wanted to enroll into the program because it would help her financial situation and she felt comfortable with our approach and background.  We set up an appointment two days later for her to come back and complete an enrollment application.  I asked her to bring along some other documents including a pay stub and a list of all her monthly expenses.

During the appointment, I realized she only made about $2,600 a month after taxes but her monthly expenses with her mortgage, car payments, medical bills, food costs, etc totaled over $4,500.  She was upside down nearly $2,000 per month.  There was no financial way she could afford her current expenses let alone the additional $1000 she would need to provide for the debt settlement program — she owed $58,000 on credit cards.  Even if she was able to eliminate her mortgage and her car payments tomorrow, she still could not afford the program.  It was difficult for her to accept.  She asked me to ignore her income and she asked if I coud even lie about her income to our underwriters.  She insisted that she would find a way afford the program and she would make it happen. 

I had to be firm with her and explained that it was simply irresponsible and unethical for Provanta to enroll her.  She had over extended herself long ago because of poor budgeting and because her creditors allowed it to happen.  Her creditors should not have extended over $50,000 of credit on credit cards to someone who only makes $2,600 a month and she should not have been able to purchase a home where the mortgage payment accounts for more than half of her monthly disposable income.  It’s unfortunate for her, but she’s at a point where it’s unlikely any debt program could help her.  She asked about bankruptcy and I told her that it may be worthwhile for her to consult with an attorney specialist.  

(Ref. 1509)

Technorati Tags: bankruptcy, debt settlement, BBB, Better Business Bureau, debt settlement underwriting, bankruptcy attorney

Being Perfect is Hard But You Still Have to Try

Sometimes our clients are exasperated by the amount of questions our Program Management Department asks them when they call in to request an EFT (Electronic Funds Transfer) reduction or skip.  The line of questioning often includes:

1. What is the exact reason for your request?
2. Is there any other way for you to pay for that unexpected emergency, expense, etc?
3. Can you reduce or cut back on any other expense this month instead of using your Settlement Fund?
4. Have you reviewed your entire budget to determine this? If no, let’s go through it together.
5. Can you pay for that unexpected expense over the next few months instead of all at once?
6. Can you obtain the money elsewhere?
7. Can you increase next month’s EFT to make up for this?
8. Can you increase any future EFTs to get you back on track with your EFT schedule?

It is not our goal to give our clients the third degree every time they call in (believe me, it’s not that fun for our Program Mangers either), but it’s extremely important that our clients maintain the EFT deposit schedule if we are to provide the best results possible for them.  Provanta cannot effectively negotiate for debt forgiveness settlements to creditors if there are no funds to work with.  In addition, if a client reduces or skips their EFTs and does not make up for them in the future, our client’s program will undoubtedly take longer than the original estimated time frame.  Longer programs expose our clients to higher chances of above average settlements and higher chances that the creditor may give up on negotiation process altogether and look into litigation.

This does not mean we deny our client’s request.  We understand more than anyone else that life happens and there will be unexpected emergencies during enrollment.  That’s why we honor most of the requests without having to resort to a suspension or withdrawal of services, action reserved for egregious and repeated abuse of the client agreement.  We just want to make sure the client understands that the EFTs need to be placed at the top of the priority list, along with other absolute necessities such as mortgage or rent, food, utilities, car payments, medical payments and insurance. 

Technorati Tags: debt settlement program, debt forgiveness, debt negotiation, financial settlements, debt consolidation

Can You Afford A Debt Settlement Program?

In talking to thousands of potential clients over the years it has become abundantly clear that the primary issue for most individuals struggling with debt is simply an inadequate grasp of cash flow. Many people believe that because they are current with their monthly minimum payments to their creditors they will then be able to afford a debt relief program whether it be debt settlement or consumer credit counseling. The reality of the situation may indeed be quite to the contrary. It comes as a shock to many when they discover that they are actually running negative every month. Let me give you a quick example.

Joe and Mary’s net income is $5,000 a month. They currently have about $40,000 in credit card debt. They pay about $1,200 a month in minimums to their creditors. They are not behind on payments and actually happy that they have been able to maintain a relatively good credit score. However, they have recently discovered that they are approaching the limits on the credit cards and that their debt to credit ratio is in decline. The credit score that they used to be so proud of has begun to erode and they know that something has to be done. They have not actually used the credit cards for purchases in about a year and are now looking into a debt settlement or credit counseling program.

A quick review of Joe and Mary’s expenses reveal that their regular monthly living expenses including the: mortgage, homeowners insurance, property taxes, utilities, car payments, insurance, gas, maintenance, food, clothing, daycare, school lunches and supplies totals $5,000 a month. When the credit card minimum payments are added to this total it brings their grand total to $6,200 a month. In subtracting their expenses from their income it is discovered that they are running negative each month to the tune of $1,200. They realize that the only way they are staying current with their creditors is via balance transfers and cash advances.

Joe and Mary decide that a debt settlement program will provide the best solution to resolve their $40,000 in credit card debt. They quickly learn that a monthly payment to a debt settlement program lasting 3 years is approximately $667. While this is substantially less than the $1,200 a month they are currently paying their creditors the debt settlement company will not enroll them because they are still negative by about $667 a month.

The only way for Joe and Mary to afford the debt settlement program is to eliminate some of their monthly living expenses or increase their income. Because Joe and Mary are already working overtime and cannot possibly generate any more income they decide to sell one of their vehicles and move into a smaller apartment. The decrease in living expenses increases their available income by about $800 a month allowing them to enroll in a 3 year debt settlement program.

Technorati Tags: budgeting