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Debt Help

The Debt & Personal Finance Blog and Magazine

Wednesday, January 30, 2008

Teaching Kids to Manage Credit: It's as Easy As ABC

Good credit starts at home and spreads abroad -

Well, the old adage actually says "charity" instead of "good credit", but the latter case still rings true. When kids are taught financial literacy and responsibility growing up, they take those lessons with them throughout their lives, eventually teaching their own children.

My mom and dad had no idea that I would need to become financially literate before I left home. My parents had children in their later years, so we are from two totally different generations. Sure, they taught us basic spending and savings skills, but there was not much mention of credit, investments, retirement funding, or anything that "grown up." They simply thought that we had time to learn those things.

They realized that they were wrong when I came home from college with a plummeting credit score and some serious unpaid bills.

There are lots of families, however, who are aware and are taking action early. This recent USA Today article highlights some great strategies that real parents are using to foster fiscal fitness in the lives of their children. I saw some things that I plan on implementing with my little ones when they come of age.

Hopefully, they will learn from my errors and omissions and provide even better training for their children...

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Saturday, January 26, 2008

The Discover Motiva Card Is LOL Funny

I've been recommending the Discover More card for years. The card has great features, like 0% intro APR on both balance transfers and new credit card purchases, and a decent rewards program. Discover More charges a fee for transferring balances these days, but the card still offers much value if you pay your entire balance in full each month.

Discover recently introduced a new credit product: the Motiva Card. I had to chuckle when I saw a commercial for Discover Motiva. The primary selling point of this card is:

"Each time you make 6 on-time payments in a row, get your next month's interest back"

The Discover Motiva CardSo, the good folks at Discover Financial want us believe that it's OK to pay interest on your Discover Motiva credit card debt, because Motiva will reward for it by returning one month's interest to you, about every half a year or so. Wow! What a great deal! Motiva is really looking out for me!

Here's a clip from the Motiva Card FAQ:

"Pay-on-Time Bonus is a type of Cashback Bonus that you earn for making your payments on-time. Each time you make 6 on-time payments in a row, we'll pay you the next month's interest back as a Pay-On-Time Bonus. An on-time payment means paying at least the Minimum Payment Due by the Payment Due Date. Your statement will display the remaining number of on-time payments you need to earn a Pay-On-Time Bonus. The amount of your Pay-On-Time Bonus will be included on your statement in the Cashback Bonus Summary section, along with the cash rewards you've earned on purchases."

Heh...Funny stuff.

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Friday, January 25, 2008

Can You Really Buy a Great FICO Score?

With every great industry comes subindustries; the housing industry is no different. From the traditional mortgage lending industry emerged the subprime mortgage industry. However, now that subprime lending is mainstream, companies who offer quick FICO fixes for individuals who have further damaged their credit through subprime borrowing abuses or other poor credit usage are now coming to the foreferont.

Yes, you can buy a good FICO score these days.

However, you might not be able to do it for long. These kinds of companies use legal loopholes to cosmetically establish good credit scores, and neither the Fair Isaac Corporation nor mortgage lending industry leaders are happy about it. These quick credit fixes are achieved by essentially attaching individuals with poor credit to the loans and credit accounts of others with good credit - and it's legal! This, opposers argue, will inevitably lead to more woes in mortgage lending scrutiny and foreclosures because people who really should not be approved for loans will be.

Furthermore, many think it to be unethical, as it is a false positive of sorts concerning one's creditworthiness. Fair Isaac is already changing it's formula to exclude some of these slick maneuvers from counting toward FICO score calculation. Industry whistleblowers are calling for further regulation. It seems like this 'insta-credit' subindustry might be of the "fly by night" sort with this level of opposition.

But what do I know - upon seeing the first episode or so, I predicted that the Power Rangers would flop, and I was absolutely sure that "Friends" wouldn't last.

Go figure...

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Thursday, January 24, 2008

Hey, Student Loan: Bye-Bye, and Thanks for The Memories

My student loan statement for 2007 arrived from the U.S. Department of Education (ED) earlier today. As I reviewed the numbers, I reached a section of the document that actually made me somewhat sick to my stomach. Here it is:

student loan statement

The sickening part, you ask? Since I began repaying this loan, I've paid nearly as much money in interest as I have on the principal. That's enough to make anyone queasy. This truth didn't bother me too much in the past, but it does now. A lot. I'm just too old to be paying this kinda' interest. For 2007, I paid close to $650 in interest on my student loan debt.

This situation is my fault really. When I started repaying this loan, I wasn't making that much money, so I wanted the installment amount to be a low as possible. Thankfully, the good folks at William D. Ford have an "income contingent" repayment option which allows the borrower to set their monthly payment amount to a figure that's commensurate with their salary. My payment was set to $109.11 per month, which has been very manageable over the years, especially with the added tax deduction. Income contingent is great for your budget in the short term, but devastating for your finances in the long. Paying such a small amount each month is a great way to get nowhere fast. I should have gotten off income contingent a while ago.

I thought about contacting ED to get myself off the income contingent plan and onto a plan more compatible with my current financial status. I thought about this for a while and eventually came to the conclusion that this option wouldn't give me any real satisfaction. I realized that the only way I was going to feel like I've improved my financial life would be to get rid of my student loan debt as fast as possible.

0% offer from Bank of AmericaMy next idea was to take advantage of one of the 0% balance transfer checks that I often receive via snail mail, offers from credit card companies with which I already have an account. In fact, today I got one from Bank of America, and it fit the bill nicely. The balance on my student loan debt is a little over $11,500 (I called for a payoff quote), and this particular Bank of America account has a credit limit that's close to $13,000. All I would have had to do was sign the check, mail it to ED, and the debt would have been transferred to my card. I would have paid no interest on the debt until January 2009. I wouldn't have waited that long to pay it down to zero, however; I would have paid the card off within 4 to 5 months.

This idea soured real fast when I realized that my credit score would have taken a pretty big hit as a result of this debt transfer maneuver, especially because this card would have been close to "maxed out" for a while.

I then decided to just payoff the debt with good old fashioned cash, a decision I'm going to stick with. In a few minutes, I'm going to make arrangements with my bank to transfer the cash, and, in about 12 days or so, the cancer that is my student loan debt will be expunged from my life forever.

The decision to pay cash wasn't an easy one. Very recently, I dipped into my puny savings account to payoff my car note, so another incursion into my savings account is going to leave me with a very wimpy emergency fund. The prospect of being 100% free from paying interest, however, is just too tantalizing for me to resist, so I'm doing it. I'll have to tighten my belt for some months, but that's OK, for I've learned to love the idea of making small sacrifices in order to realize "big picture" goals.



Wednesday, January 23, 2008

Cosigning for Kids - Is It Worth the Risk?

There are lots of parents who cosign for vehicles, apartments, and homes for their children who have little or bad credit. Sometimes a parent has to sign as a primary owner with the child as a secondary owner. My mother supported me in this way when I was younger. However, is it always worth the risk to go out on a limb for children and loved ones?

A friend of mine would be inclined to say no.

She took on the primary responsibility for her young daughter's car loan. The twenty-something daughter needed reliable transportation to move between freelance IT job opportunities, as that was how she made her living. She also was involved in weekly church activities that ended at night. No mother wants her daughter to be vulnerable, so she agreed to put her credit on the line for her daughter's protection and convenience.

Needless to say, this story does not have a happy ending.

In short, the daughter, who was also generally irresponsible, stuck her mother with the bill more often than not. The daughter was quite the diva, and her feelings of entitlement caused her mother to become financially strapped in order to keep from ruining her credit.

Sometimes kids need and appreciate a hand up. Sometimes parents can become enablers. My children aren't even old enough to ride bicycles yet, so I dread the day when they ask me for a set of keys. It must be difficult dealing with issues of whether or not to help certain children in certain ways. This must be another side of what people call "tough love."

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Tuesday, January 22, 2008

FICO Credit Score At 803: Still Moving Sideways

My FICO® credit score has been updated. Here's the latest snapshot:

Updated Chart of My FICO Credit Score - January 25, 2008: 803 - sideways

Still moving sideways, and I'm OK with that. This journey began back in 2004 when my FICO score was 628, so 803 is fine with me.

I am not expecting any movement for my score until March; that's when my car loan payoff should be firmly entrenched in all my credit reports. At my next FICO update, we'll see what paying off a car note can do for one's FICO score, in real world terms. And since I'm preparing right now to payoff my student loan, I'll be able to report -- by April -- on what annihilating student loan debt can do for one's score. Stay tuned!

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Monday, January 21, 2008

A Guerilla Approach to Fighting Foreclosure

I was digging through the WSJ.com archives for fun today, and came across an interesting article about Richard Davet, an Ohio native who was able to ward off foreclosure for 11 years. The part of the story I found most compelling was when a federal judge dismissed 14 foreclosure suits because the plaintiffs weren't able to prove that they in fact owned the mortgage when the lawsuit was filed.

During the housing boom of recent years, lots of lenders made millions by originating loans, then bundling them together and selling them on the secondary market. Eventually, it became difficult to know exactly who owned these mortgages.

So maybe a viable defense against foreclosure is, "Oh, so you wanna' foreclose on me? Well, I'm not moving, because I don't think you own my mortgage anymore. If you don't like it, take me to court and prove it!" With this defense, you'll probably end up on the street eventually, but it could buy a money-strapped homeowner many years in a mortgage-free home, time that can be used to save money and stabilize finances.

Here are some clips from the article:

"...Faced with the threat of foreclosure, many homeowners give up and abandon their homes.

Then there's Richard Davet.

He and his wife, Lynn, lived in a six-bedroom home in this Cleveland suburb for nearly 20 years when, in 1996, he was served with a foreclosure lawsuit. Rather than turn over the keys, he hit the law books. Flooding the courts with papers, Mr. Davet staved off foreclosure for 11 years, until this past January, when a county sheriff's deputy evicted the couple and changed the locks. They didn't make a mortgage payment the entire time..."

"...A former jewelry-business owner, Mr. Davet and his wife, a former graphic-arts tutor, bought their home in 1978 for $150,000. As its value increased they borrowed against it. They made their mortgage payments, but on one loan, they allegedly made payments late -- 90 times, according to NationsBanc Mortgage Corp., which assessed the couple some $4,000 in late fees.

After the Davets for two years refused demands to pay the late fees, during which NationsBanc began refusing to accept their regular mortgage payments, the company sued for foreclosure. At the time the couple still owed $80,000 in principal, plus an additional $160,000 on a second mortgage on the home. Mr. Davet insists the late fees were erroneous -- he points to a deposition in which a NationsBanc employee conceded that the company couldn't back up its claims for a chunk of the fees. So he began his full-time crusade in the courts to keep his home.

He started with the help of lawyers, but those arrangements didn't last. Dan Dreyfuss, who represented the couple when the case was filed, called Mr. Davet's strategy "a recipe for how to confound the courts." He quit after Mr. Davet filed a motion to disqualify a judge against his advice. Mr. Kalk eventually sued Mr. Davet, successfully, for unpaid legal fees.

On his own, as a "pro se" litigant, Mr. Davet was undeterred. Four times a week he went to Case Western Reserve University School of Law to study legal writing and case law in its library. His briefs were angry and colorful, including football analogies and an aside on Enron Corp.

Among his maneuvers: asking a judge to arrest NationsBanc's CEO for initiating a "sham" proceeding against him because the company claimed in error that it owned his loan. (The judge dismissed the request.) He later sought to disqualify the judge because she had accepted campaign contributions from real-estate developers, whose Beachwood developments Mr. Davet had publicly protested before the foreclosure litigation. When he didn't win that motion, Mr. Davet sought to disqualify the judge who had dismissed it. He appealed at every chance he could, which bought him extra years in his home..."

"...The house was later sold to another family for $410,000.

The eviction finally happened on a snowy day in January of this year. Don Saunders, who lived three doors down from Mr. Davet and is a trustee of the neighborhood association, says it came as a shock in the upscale area.

Mr. Davet continued to try, unsuccessfully, to get the federal court to agree that the state judgment was invalid. Then, a possible lifeline arrived this past October, when a federal judge in Cleveland, Christopher A. Boyko, dismissed 14 foreclosure suits because the plaintiffs that brought them couldn't prove they owned the mortgages when the suits were filed.

Such a problem can occur when mortgages are turned into securities and sold to investors. The companies involved in the transaction may not have checked that each mortgage was legally transferred, or "assigned," to the new owners. In essence, the originating lender continued to legally own the mortgage -- and would thus need to be the plaintiff in a foreclosure suit. In Mr. Davet's case, however, the mortgage, which was not securitized, changed hands multiple times and wasn't actually owned by NationsBanc until three years after the company filed suit.

Other judges have since followed Judge Boyko's lead. The Ohio attorney general has asked numerous judges to dismiss or delay foreclosures based on similar grounds.

Earlier this month, Mr. Davet filed a second federal appeal, this time citing the Boyko ruling, which he believes he inspired. It's unclear whether the latest salvo will work. If it doesn't, Mr. Davet says, he will set his sights on the U.S. Supreme Court..."

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Sunday, January 20, 2008

Alternative Lending Sources

What is the proper measure for creditworthiness in this day and age?

Apparently, it is no longer simply the credit report or the verdict of one's local banking institution. There are so many individuals who fall short of traditional standards of creditworthiness that the marketplace has naturally made room for non-traditional lenders. Besides the controversial subprime mortgage lending industry that most people are by now familiar with, there is a increasung trend in person-to-person lending organizations. Websites like Prosper.com facilitate lending transactions between individuals and other single or small group benefactors. Using such a service empowers people who may not otherwise receive loan funding to finance their dreams and goals.

I am still not sure how I feel about the rise in alternative lending resources. At first glance it looks great; power to the people, right? There is no reason why deserving people should have to remain at the mercy of the big bad traditional financial institutions, right? I'm not so sure that pumping more loans into the pipeline is the answer. Then again, I am one of the few who believes that people should begin to move away from financing instead of toward it. If enough people renounced the borrowing lifestyle and stopped applying for loans, the market would respond with more competetive rates and terms. Then we wouldn't need many of these alternative lending options.

Wouldn't that be something?

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Saturday, January 19, 2008

What Will I Do With My Tax Refund Check?

So Bush is giving something back...

Approximately 1% of the Gross National Product will be distributed to middle America as an economic "shot in the arm." Refund checks for everyone; yipee! Although I know that this 'free money' won't actually make it to my doorstep until much later this year, I am already thinking about what my husband and I are going to do with it.

The responsible thing to do would be to pay down our debt with the money; we wouldn't miss it because it would not be coming out of our regular income. How simple is that? I know that most people will probably hit the malls and the car lots, which is what the government is hoping for - a jolt in consumer spending. Many will even convince themselves that they do so well paying their bills all year long that they deserve to splurge.

Maybe that's true; but is it wise?

I hope that my husband and I maintain the discipline we need to go ahead and invest that money in our freedom. It might make me feel free to go to the mall and spend $1600 on various wants and needs, but once I get home and see that unwaivering mountain of bills, the feeling will fade. Paying down or paying off a debt that we owe will be a step toward a freedom that lasts.

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Friday, January 18, 2008

Debt Reduction -- Why It Is So Important To Do Now

Our Grand Debt and Cost of Living Reduction Adventure was inspired by a variety of factors. While some were personal, such as having more time to enjoy our children, others were strictly financial. My financial reasons were based on looking at the big economic picture. I've been watching global economics for about 4 years now. (Yes, I realize that I have strange hobbies.) And, the big picture tells me that getting out of debt and getting spending under control is very important right now.

By now, most are familiar with the mortgage and lending meltdown and its closely associated foreclosure crisis. Foreclosures are occurring at rates that haven't been seen since the Great Depression. Many of the foreclosures have to do with loose lending practices, and practices that some define as predatory, which resulted in people getting mortgages who wouldn't have been approved under more standard lending practices, due to the risk of default. Another aspect of the foreclosure crisis has had to do with teaser rates and adjustable rate mortgages. As the rates increased and the monthly mortgage obligation climbed, people struggled to make their payments.

Easy loans fueled a housing bubble, with prices going up, up, up. Many home prices reached incredible levels, and homeowners borrowed against these inflated values, pushing themselves further into debt. While lenders were engaging in riskier loans, they were also selling those debts to investors in various forms of mortgage or debt backed financial instruments.

As more people default on their loans, those investors are losing their money, and getting scared of that particular investment market. The wave of foreclosures has slapped house prices back into the realm of reality, reducing the value of homes throughout the nation. In fact, the affect of our mortgage and lending crisis has touched housing and credit markets throughout the world, not only through international investment, but also by setting off small housing bubbles elsewhere.

Homeowners, holding mortgages based on inflated values, are all too frequently finding themselves with a mortgage that is greater than the current value of the property. Lenders are writing down billions in debt and struggling, some unsuccessfully, to stay afloat. With more ARMs due to reset in coming months, the situation is likely to get worse before it gets better, and the big banks and other lenders are scrambling to find a way to shore up the foundation of the industry, before the next wave crashes, shaking that foundation loose and threatening the current banking system to its core.

There are two potential waves in view. Credit card debt is at an all time high. Unfortunately, delinquencies are starting to creep up to heights that haven't been seen in quite a while. Credit card companies are starting to experience significant losses. And now, according to recent news, it seems as though the auto loan industry is entering into a similar phase. The situations with credit card and auto loan debt have an interesting factor in common with the mortgage situation -- those debts were also packaged as investments and sold to investors throughout the world.

But, wait, there's more. The value of the dollar is falling, and fast. The euro is just one currency that has experienced record heights in value when measured against the shrinking worth of the dollar. The increase in fuel prices is affecting the price of everything. Food and other goods have to be transported throughout the nation, fuel is essential to the running of the factory farms we rely on to feed us. Much of the country is feeling the pinch of increased home heating costs. Inflation further eats away at the purchasing power of the dollar, and no matter how hard the government tries to hide it -- and they do that by manipulating the numbers in order to avoid cost of living increases for such things as Social Security -- at this point, even they have been forced to admit that the rate of inflation is climbing.

Those factors, in combination with the other fiscal problems they bring with them -- such as a slowing job market -- lead me to firmly believe that debt reduction now is essential to financial security and health. Carrying unnecessary debt in the face of all of the fiscal problems before us is just dangerous. Therefore, for us, reducing debt now and setting up a way of life that decreases our cost of living dramatically, such as being self-sufficient in our energy by using solar and wind, is of paramount importance, as that will help to ensure that we are able to better ride out the difficult economic conditions seem to be just over the horizon and fast approaching.

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Thursday, January 17, 2008

Life Lessons: How Will Your Children Learn About Credit?

I remember my first credit card - it was a store card for a popular fashion outlet. I recall how nervous I was as I completed the application; I didn't think that I would be approved. Despite my financial advisor's assurance that I would easily attain this line of credit, I found myself anxious, uncertain if they would trust me that much. And why should they? I was an eighteen-year-old college freshman who's financial advice came from a nineteen-year-old.

My best friend was one year older and that much wiser, but she was my role model 500 miles away from our home in a brand new environment. She told me that I should have this card for emergency party clothes and other such dire necessities, and since I could also use it in their sister company's catalogue, it was an absolute must-have.

Who could argue with that?

A well educated, financially literate young adult could. My parents had no idea that I needed to be taught about the proper use of credit because they did not anticipate it even being an issue so soon. I was supposed to be a mature adult before anyone would even approve me for a line of credit. By then, I should have had the wisdom to know what to do.

Needless to say, I waltzed down a slippery slope that quickly led to bad credit. I am still recovering. Years later, I still have the same best friend, whom I still tease, accusing her of single handedly ruining my credit with her bad advice. However, it wasn't her poor advice that sealed my fate, but the lack of good advice from the proper sources.

Bottom line: I am not going to let my kids go down the same road I did. I am going to teach them about money and credit. If I don't, who's going to teach them? Predatory lenders, and teenaged peers who really have no idea what they are doing, that's who.

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Wednesday, January 16, 2008

Will You Walk The Road Alone?

The road to financial freedom is a lonely road, and sometimes it's a road one has to walk alone.

Our family grew significantly last year with the arrival of twins, so my husband and I knew that we could no longer evade the inevitable: we were going to have to get a minivan. With three small children and a dog, we could no longer afford the luxury of our mid-sized SUV; we needed more space, and we needed it ASAP. Many young couples like ourselves would have used such a family expansion as an excuse to take on more debt, rushing to get a brand new minivan in the name of necessity. We, however, are on the road to debt freedom, so financing a new vehicle was out of the question.

My husband found a very nice used minivan at a local dealership that he felt was reasonably priced and possibly worth more than what the dealer was asking. The only drawback was that it cost more than what we had in our savings. In order to get what we wanted, we would have to save very aggressively in addition to paying all of our current bills! Needless to say, it wasn't much fun at all.

There was no take-out, no movie night, and no clothes shopping for a while. Delicious wheat bread was replaced with not-so-appealing white. Some of our friends even thought that we had come upon hard times. We weren't paupers, we just conserved in every way possible, and those who are still in a debt-controlled lifestyle just didn't understand. However, when we had finished suffering for a little while, we were able to get what we needed without owing a dime. The van is gorgeous, and those who scoffed at our penny pinching have all since bitten their tongues. The best feeling, however, was not the feeling that we had received the fruits of our labor or even that we had done what others would not or could not do.

The best feeling was the freedom of knowing that we owned it - ownership is the strength that keeps us on this lonely road.

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Tuesday, January 15, 2008

Falling Home Values and Urban Blight: The Start of a Grand Debt Reduction Adventure

urban blightAbout a decade ago, my sister and my mother bought a modest two family home together in a working-class neighborhood made up primarily of people that lived in the homes that they owned. Many of these people had been in the neighborhood for decades, and many were getting on in age.

Through the years, as the older folks passed away, their adult children would return from suburbia long enough to pack up a few mementos, sell what could be sold, leave the rest on the curb for the city trash collectors to dispose of, and turn the keys over to a realtor. A few kept the keys and joined the ranks of absentee landlords, as were many of those buying properties from the realtors.

Soon, we had strangers in our midsts. Drug dealers who were tired of the competition and danger of selling in New York City and preferred the relative calm and higher profits of the capital region made up a significant portion of the new arrivals. A neighborhood that once featured kids playing outside and neighbors who all knew each other, became one in which shootings happened. Stabbings happened. Drug and prostitution traffic were readily visible.

The children had to be taught how to adapt to the new environment. If you hear loud arguing, get in the house. If you see the police driving slow down the block, come in. No playing outside without one or more of the Great Danes keeping watch. Those are the rules for the back yard, they're never out front alone. A dispute between drug dealers ended up with a 12 year old getting grazed by a stray bullet a couple of summers ago.

Property values, naturally, declined. My mother passed away and I took over her half of the two-family home. And, my sister and I started to think. We thought about: over $900 per month for the mortgage, almost four thousand a year for property tax, and heating costs of more than $500 per flat per month during the heating season. All for a place in which we were, really, no longer happy.

Our situation was this: with kids and an assortment of pets that includes Great Danes upstairs and downstairs, her cats, my mother's birds, which I had to take custody of after her death, as they would not survive my sister's cats, and my nephew's turtle, we have no choice but to own. Selling the house leaves us with no start up capital to buy another home, as the property values have dropped and we have debts remaining from the period of time after my mother's stroke, when her health insurance ran out, until we could make other arrangements for her health care costs. Credit scores were damaged in the struggle to make sure my mother had her medicine during the period she was without health coverage.

And, then, we came up with a plan. Our grand debt and cost of living reduction adventure. Sell the house, eliminate the lingering debt, get a fresh start. Buy a tract of land, and set up our homes to run off the grid, using solar and wind power, reducing our expenses greatly. Invest our efforts and our money into being as self-sufficient as possible, including food production. The goal is to eliminate debt and reduce cash outlay, which will, in turn, allow us to reduce the time spent working and increase the time spent enjoying our children and our lives. After all, children grow so fast, too fast, and all too soon there will be plenty of time for 60 hour weeks again.

We are currently in phase one -- wrapping up the details of the house, packing up, and putting things in storage until we are ready for them. The motor home is parked out front, awaiting the beginning of our journey to make our new home in much warmer weather. We expect to leave NY during the first week of February and I look forward to sharing the details of our grand debt and cost of living reduction adventure with you as we experience it through the weeks and months to come.

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Sunday, January 13, 2008

Reduce Your Medical Debt

Hospital bills are expensive. A single emergency room visit with x-rays can cost $1000 or more. If you need an MRI or a CT scan, it will easily add another $2000. A hospital stay without surgery for only a few days will run $5000 and up. Unfortunately, debt due to medical expenses is difficult to avoid. When you need medical treatment, you need it. It is not usually an expense you can save up for and just put off treatment until you can pay the bill with cash at the time of service. But you can look for ways to reduce your bills and in turn, your debt.

I have spent the past 4 years fighting an $18,000 hospital bill for my husband's dental surgery. He has Medicare and full coverage on my Blue Cross Blue Shield policy as well as dental insurance. In effect, he should not have to pay more than the BCBS policy copay for any office visit or hospital stay.

He has a rare condition that requires that ordinary dental work such as fillings be performed under general anesthesia with special medications. Prior to scheduling the surgery, I met with the finance office to make sure that they had notified all of the insurance companies correctly and included an exception notice as insurance does not generally pay for dental surgery. I was assured it was all done correctly and the pre-authorizations had been obtained.

As you can guess, nothing was billed correctly. They billed my insurance first, even though it was supposed to pay after Medicare was done paying their share. They forgot to send the exception notice to Medicare. As a result, Medicare said it would not pay and under the terms of Medicare, I did not have to pay either, since the billing error was the hospital's fault. My BCBS and the dental insurance company eventually picked up a lot of the tab, but the Medicare snafu left a $6000 tab in my name.

I have spent countless hours and many certified letters trying to explain to the hospital why I do not owe them any money. It was well worth it, as I finally got them to reduce the bill to under $200. I finally just paid that in order to be done with it. But, I had to take the time to read the Medicare and BCBS policies and fight for the reduction. Imagine how many people would not have realized that the money was not owed and would have just paid it based on the hospital's word that they owed it?

So here is the advice I can pass on after my ordeal - if you have medical bills, always make sure they are accurate. You would be surprised at how often you are charged improperly. My husband was billed for multiple ice packs – which you or I would have used after dental surgery to keep our faces from looking like watermelons. However, due to his medical condition, he is forbidden to use ice. I was able to have those charges removed from his bill. Always request a detailed copy of your bill and make sure that you actually received every service, medication and supply listed.

For those of you with health insurance, read the fine print in your policy carefully. Always request a detailed copy of your bill and make sure that you actually received every service, medication and supply listed. Then double check to make sure that your insurance company paid for everything it was supposed to pay for. Do not agree to pay for something that your insurance should have covered.

If you do not have health insurance, ask to set up a payment plan. Many hospitals will reduce the costs for someone without health insurance who is going to have to pay in case, so check with the billing office to see if your hospital offers this reduced cash rate.

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Saturday, January 05, 2008

No More Car Payments

For some months now, I had been thinking of dumping some cash into a certificate of deposit (CD) because the Fed is currently in a cycle of cutting interest rates. The Fed has been cutting since mid-September of last year, and when the Fed cuts the benchmark Fed Funds Target Rate, yields on CD's and money market accounts drop as well. About 3 months ago, when I first got the urge to invest in a CD, the annual percentage yield (APY) on a 12 month CD at my credit union was 4.16%. Today, the yield is 3.6%, and since the Fed will be lowering rates some more, the yield will only head south in the coming months.

But then I thought about my car loan, on which I'm paying an even 6.00% annual percentage rate (APR). Does it make sense to invest in a CD paying less than 4% APY, when I'm paying 6% APR on my car loan? No, not really, especially because a car is a depreciating asset. The resale value of my car holds up very, very well, which I was able to verify by checking out prices on eBay Motors, and looking up estimates on Kelly Blue Book and NADA for the same make and model. But a car that's accumulating miles in the Northeast USA, where there's plenty of car-corroding salt and sand, will always depreciate over time, so my baby is still losing value, though at a relatively slow pace. So, despite the pleasant fact that the realistic value of my ride was higher than the balance on my car note, it became very clear to me (don't you just love clarity?) that the right thing to do was use my spare cash to payoff the loan, and invest in a CD later.

paid! mine!So, last Wednesday, I logged onto the Capital One website to get a payoff quote for my auto loan. On Thursday morning, I visited my local post office and mailed, via overnight express, a check for a tad over $9,000. Today, I was able to login to the Capital One site and confirm that the payment was received. Yahoo. Feels pretty good: I own a great car, and I no longer have car payments (I was paying around $349 per month.)

Actually, if the interest-rate environment isn't looking good in a few months, I may opt to payoff my student loan instead of getting a CD. I would need another $10,000 or so to pull that off, so it won't be an easy decision. The only positive thing about student loan debt: the interest is tax deductible (at least it has been; it may not be anymore since my balance is relatively low now.) I think the urge to payoff my student loan will increase as the months pass, because it's now the only debt I have where I am paying interest, and I'm really tired of paying interest!

Will my car loan payoff boost my credit score? Maybe a little. I'll report back as soon as my FICO score is updated.

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