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The holidays have passed, leaving many people concerned about their finances
in the coming year. This edition of "Money Sense Online" will give you the
straight story on tax refund loans, debt re-negotiation settlements, and how
to know if your debt situation has reached a crisis. And, you can find out
how our CCCS-OC budget experts handled their own finances over the holidays!
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Holiday Debt Hangover Getting You Down? |
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Has the happiness of holiday giving turned into the depression of paying January debts? Find out if you may have entered the early stages of debt crisis. |
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How Well Do Budget Experts Stick to Their Budgets? |
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Ever wonder just how well our CCCS-OC experts keep to their own budgets for the holidays? We conducted a poll to find out how well they stuck to their spending plan and what they plan to do differently next year. |
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Tax Time Alert: Would You Pay 269% APR On An Eight-Day Loan? |
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The main problem with Refund Anticipation Loans (RAL) is the extremely high cost for what usually works out to be an eight to 14-day loan. |
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Study Says Millions of Americans Jeopardized by Inaccurate Credit Scores |
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A report released in December says that millions of Americans could be paying more for credit, insurance, or utilities--or denied these services altogether--because of inaccurate credit scores. |
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Promises, Promises, Promises The Dangers of Debt Re-negotiation Settlements |
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Eager to find a quick fix, consumers with large debts may be drawn toward debt re-negotiation companies who say they can get creditors to settle accounts for pennies on the dollar. But for many people the settlements are slow in coming, much less than hoped for, and packed with problems. |
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Sally Says: Ask these 10 Questions Before You Choose a Credit Counseling Agency |
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Other companies may say they offer the same services as CCCS-OC. Before you trust your finances to any company, we recommend you get answers to these important questions. |
| Holiday Debt Hangover Getting You Down? |
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Has the happiness of holiday giving turned into the depression of paying January debts? If so, you're not alone. Many people spent themselves into financial trouble during 2002's holiday season. Now, they must pay off what they purchased and still find money for January's expenses.
If the following symptoms describe your finances, you may be experiencing
more than just holiday debt hangover--you may have entered the early stages of
debt crisis:
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CCCS-OC is dedicated to helping you overcome your financial problems. Here are three tips for paying down debt in a wavering economy: call your creditor, plan your budget, and seek helpful credit counseling.
1. Call Your Creditor: Don't be afraid to call your creditor. Describe your situation and, if you have a good credit and payment history, you may be able to negotiate the amount of your payments or a lower interest rate.
2. Plan Your Budget: "Budgeting is a quick process that can save thousands of dollars in payments, interest, and fees," CCCS-OC President and CEO Jim Frannea said. "Many people make the mistake of trying to budget in their minds as they spend. But this is typically a set-up for holiday debt hangover, because they didn't plan a budget or didn't stick to their budget plan."
3. Seek Helpful Credit Counseling: From financial education to debt management, CCCS-OC has trained and certified credit counselors who offer low-cost financial planning and debt-reduction services. Private, personal, and in-depth sessions are available in person, on the phone, or over the Internet.
back to top| How Well Do Budget Experts Stick to Their Budgets? |
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Ever wonder just how well our CCCS-OC experts keep to their own budgets for the holidays? We conducted a poll to find out how well they stuck to their spending plan and what they plan to do differently next year.
Q: Did you have a holiday budget?- 80% Had a written budget
- 10% Set a spending limit
- 10% Didn't need a budget
- 60% Stayed within budget
- 20% Over minimally
- 20% Over marginally
- Cut down on my list and didn't overspend on the kids like in years past.
- Made more homemade gifts and participated in more group gift exchanges.
- Had a list of people to buy gifts for and how much to spend on each one.
- Wrote out my budget and kept track of how much I spent on each purchase.
- Did a family gift exchange for the adults, which means I had to buy one gift instead of 16.
- I bought my son a puppy, but didn't figure in all of the extra costs, like food, shots, a collar and leash, and toys.
- I took the budgeted amount out of my account but found that it was hard to keep track of where the cash went, and it seemed to go faster.
- More people than usual visited during the holidays that weren't on my gift list.
- Forgot about the cost of dining out with visiting family members.
- Buy more gifts earlier and not wait until December to start shopping!
- I planned a trip right after the Holidays this year and the cost all at once was too much. Next year I'll put some time between big expenses.
- Start a Holidays Savings Club in January so I'll have cash to purchase gifts on sale throughout the year.
- Set a budget, save receipts as I shop and add up the spending as I make new purchases. When I'm out of money, the shopping stops. Those left out due to budget restrictions will be given recycled or home made gifts.
- Make more homemade gifts and keep extras on hand for people left off the gift list.
- Remember that the kids get a ton of gifts from relatives and that Santa and I don't need to purchase as much as we do for them.
- Figure in hidden expenses like postage for cards and gifts, and eating out.
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Tax Time Alert: Would You Pay 269% APR On An Eight-Day Loan? |
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Refund Anticipation Loans (RAL) offer taxpayers a loan based on the amount of their Federal tax refund. Professional tax preparers electronically file the return and the taxpayer receives the RAL either immediately or in one to three days after the filing. The tax preparer's fee is deducted from the refund amount, so taxpayers can get their taxes professionally prepared without having to pay money up front.
It is usually a good idea to hire a professional to prepare your taxes, and a RAL may sound like a good idea, especially if you lack the cash to pay the tax preparer immediately. However, the main problem with RALs is the extremely high cost for what usually works out to be an eight to 14-day loan. Here's an example:
If your refund amount is at least $1,001, you'd pay about $60 for the RAL, $90 for the tax preparer's fee, and you'd receive a RAL check of $851 within one to three days. However, if you filed the same return electronically and had the funds directly deposited into your account, you would probably receive your refund from the government in just eight to 14 days. That additional $60 you paid for the RAL works out to the equivalent of a 153% APR if you received your refund in 14 days, or a 269% APR if you received it in eight days. Some tax preparers offer instant RALs for even higher fees, which increases the interest to as much as 337% APR!
You may want to think twice about your financial situation if you need cash at such a high cost. If you are in a crisis and can't wait 10 days for a refund, consider other alternatives such as an advance on your pay, borrowing from family members, or, as a last resort, using a credit card. Even at an interest rate of 24.9%, you'd still pay less in monthly interest than you would for a RAL.
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Avoid Check Cashing Machines In the name of convenience, some tax preparers offer check-cashing machines, which allow customers to cash their RAL or refund check. Fees are high for this service, averaging up to 4%plus a surcharge of several dollars. Deposit your check into your checking or savings account instead. Most banks offer immediate access to funds from state or federal governments. |
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Study Says Millions of Americans Jeopardized by Inaccurate Credit Scores |
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Creditors use credit scores--three-digit numbers ranging from 300 to 850--to help determine how risky lending you money is. Most credit-granting decisions are made too quickly to review your entire credit report, so often your credit score alone determines the loan's terms.
With billions of pieces of information fed yearly to credit bureaus, it's impossible to prevent errors, omissions, or inaccuracies in every report. It falls to the consumer to review the credit reports from which the score is calculated and inform the credit agency of any changes that should be made.
CCCS-OC Now Offers Credit Scores, Reports, and Reviews"Our goal is to promote every aspect of financial health, from debt repayment to credit education," says CCCS-OC CEO and President Jim Frannea. "We formed this unique partnership with Equifax to give people an easier way to monitor their reports and credit scores." Now, visitors to the CCCS-OC web site can obtain their credit report and credit score online in just minutes. CCCS-OC also offers a Credit Report Review, which features a personal, in-depth review of all three credit reports by a specially trained financial counselor. "It's important to view a combination report at least once a year," says Frannea. "And it's particularly important if you plan to make a major purchase in the next year, as creditors use this information to determine how much interest they will charge for a loan."
Click here for more in-depth information on understanding credit reports, disputing errors, and improving credit scores on our web site, or click here to make an appointment for a Credit Report Review.
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Promises, Promises, Promises The Dangers of Debt Re-negotiation Settlements |
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People with overwhelming debt may panic when their creditors increase collection activities. Eager to find a quick fix, they're drawn toward debt re-negotiation companies who say they can get creditors to settle accounts for pennies on the dollar. Debtors make the deal with hope, a handshake, and a lighter pocketbook. And, in some very rare cases, the parties involved reach a settlement. But for most people the settlements are slow in coming, much less than hoped for, and packed with problems.
Recently, some clients have told us about being misled by debt re-negotiation companies that promised big results yet delivered nothing but difficulty. And, because the promises were verbal, not written, these people were unable to pursue legal remedies
.Here's why debt re-negotiation seldom works as well as promised:
1. Few creditors will accept settlement offers on an account that is only a few months overdue. To gain bargaining power, some unscrupulous companies advise clients to let their bills become very delinquent. While settlements for extremely delinquent accounts can be as much as 60-75% of the balance, these savings are more than offset by the long-term damage done to the debtor's credit report.
| Some creditors may be unwilling to make a deal at any price, leaving debtors open to wage garnishment or other legal remedies. |
2. Most creditors will bargain only in truly hopeless cases like death, disability, or illness, when suing the debtor is impossible and no other way can be found to recover the debt. Clients aren't told that some creditors may be unwilling to make a deal at any price, leaving debtors open to wage garnishment or other legal remedies.
3. Once the settlements have been paid, creditors inform credit bureaus that the account was "settled for less than the balance." This information remains on the report for seven years. Future lenders will know the account was allowed to become very delinquent and that the entire debt was never repaid. This negative information can make getting loans difficult or cause lenders to charge higher interest rates on future mortgages, car loans, and credit cards. The higher cost of future credit may actually offset the settlement savings.
4. Collection activities may continue during the entire settlement process, which often takes years. While the Fair Debt Collection Practices Act forces creditors to stop calling when the consumer requests they do so, this protection applies only to third-party collection agencies. The original creditor can continue collection activities as long as they want. Late fees, interest, and other fees can be added monthly to balances until the account is written off as bad debt, paid in full, or settled. The extreme stress and possible embarrassment of aggressive collection efforts--like telephone calls to home and work--can cause great anxiety and job related problems.
CCCS-OC encourages clients to investigate every legal avenue available to repay debts. However, it is vital to choose a company that will put their agreement in writing and who has the track record to prove they can accomplish what they promise. Before entrusting their financial future to any company or person, consumers should:
- Find out what services the business provides and what it costs.
- Get everything in writing, and not trust oral promises.
- Check out any company with your local consumer protection office, the Federal Trade Commission, and the Better Business Bureau in the company's location. They may be able to tell you whether other consumers have registered complaints about the business.
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Sally Says: Ask these 10 Questions Before You Choose a Credit Counseling Agency |
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Thousands of companies have sprung up over the past 36 months offering CCCS-OC look-alike services. Complaints against these companies have grown proportionately as desperate families find themselves stripped of their few remaining dollars by unscrupulous operators. Before you trust your finances to any company, we recommend you get answers to these questions:
Quality Assurance and Credibility- Is the company nonprofit, and how are they funded?
- Is the agency accredited by a reputable third-party organization and affiliated with a national organization like the National Foundation for Credit Counseling (NFCC), which helps assure they maintain quality standards and good customer service?
- Are their counselors certified or trained in basic money management services?
- How are client funds collected and disbursed to creditors?
- What policies are in place to assure protection of client funds?
- Do they retain any client payments for their company?
- Are clients fully credited for all payments to creditors?
- What fees does the agency charge and are their fees disclosed up front?
- Will they work with all your creditors, regardless of whether they are financially supporting the organization?
- Is counseling offered in person as well as on the phone or over the Internet, and are you offered a choice?
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