From the monthly archives:

January 2010

So they are calling for snow again in my neck of the woods, if it actually happens that will make twice in one year. To add to the massive rush of people buying bread and milk like it is going to be the apocalypse they closed schools in our county last night before even a single drop of snow started to fall. I don’t have any school age children yet so it doesn’t affect me but I am sure there are some pretty irate parents out there right now. What are you thoughts on the preemptive closing of schools at the threat of snow? Is it just good safety or bad call?

—- Updated 7:45 A.M.:

Damnit, now they just said they are closing my kids day care at 12 Noon, as it stands right now it isn’t even supposed to start raining until 3 pm, and then slowly convert to snow later in the day. I don’t get a refund for them closing for now reason now do I. WTF!

While you think about that check out this weeks links:

@FiscalGeek explains why storage units are gateway drugs to financial ruin. I guess I never thought of a storage unit that way but it is true that putting things in storage is just a way of not dealing with them. And when you start to push things away in life and ignore them that can spread to other aspects of your life.

@CanadianFinance talks about saving money with fractional RV ownership. I have zero desire to own an RV but this concept is pretty interesting. I can see the monetary benefit in timesharing a motorhome but I wonder if they apply the same concept to boats, now we are talking.

@ConqueringPF wants you to slap yourself in the face and make it happen. A good look at the things that are holding you back in life that you can control. Just slap yourself in the face and wakeup so you can achieve your dreams.

@RevancheGS discusses pets and money wondering where you draw the line. I was unfortunate enough to find myself in this situation not that long ago with my own pet, well not this situation but a similar one. Luckily we were able to get patched up for a lot less than the $4000 they initially thought but it is hard to be forced to decide between money or the death of your pet.

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During my years as a first party collector for a mortgage company we learned a lot about people who don’t pay their bills. One of the most common things we noticed is the people didn’t really understand why they couldn’t pay. They just knew that at the end of every month they had less money than was required to pay whatever bill it was that happened to be due. Most mortgage payments are due around the first part of the month so guess who didn’t get paid? There are so many reasons someone falls behind on their bills from gross neglect to dire medical emergencies. Our jobs as collectors was to take the emotion out and sympathize without allowing ourselves to empathize with them. In theory this allowed us to take an objective look at their situation to determine the proper course of action to resolve not only the delinquency but the situation that caused the delinquency to occur.

There is a big distinction in 1st party collections and 3rd party collections when it comes to the initial mindset of collections. As a 1st party collector you are a direct representative of the mortgage lender and your main goal is to ensure the borrower pays on time every month for the full duration of the loan. You don’t just want to collect, you want to make sure they are able to stay current. Your ultimate  goal is to improve the bottom line for the business and that means collecting regular interest payments from the borrower, not pissing them off and having to repossess* their home.

1st Stage of Collections

Collections on an overdue mortgage in my office would begin anywhere between 2-15 days past due. The initial contact attempts are mainly just to check with the borrow to ensure they didn’t “forget” to pay their payment or to see what the problem is and make arrangements to pay the current months payment. A good collector will realize someone who is already 15 days past due this month may not be on time next month and try to make arrangements for future payments as well. Collectors shouldn’t force the issue to much during this stage of “lateness” because the loan is most likely not considered delinquent until they are at least 30 days past due.

True Collections

When a loan reaches 30 days past due the loan is officially delinquent. Depending on the reporting dates for the mortgage company it could be reported on your credit report as late/delinquent immediately or not until the following month.  Collectors are in for a tougher go of it because they have to not only collect or make arrangements for the current months payment but they also have to make arrangements for the missed payment as well. The ultimate goal, regardless of the stage of delinquency, is always to bring the account current and ensure the borrower can keep it that way.  The goal of a good collector at this stage should be to take full assessment of the situation and determine what caused the delinquency and what the borrower might be able to do to ensure the account is brought current and stays that way.

Collectors can find themselves taking on the role of a very much uncertified debt councilor to people who don’t know they have anywhere else to turn. It is a hard situation to be thrown into but you learn to adapt and hopefully provide help to people who are in disparate need of it.

The Exception

When it hits the last week or the last couple of days of a month take all the good stuff I said about collectors trying to help and throw it out the window. In fact throw it in the garbage, crap on it, and set it on fire. At this point in the month the only goal of the collector, their boss, and probably their bosses boss is to meet the target delinquency goals so they can all get their bonus. What this means for the borrow is instant demands for payment, a total disregard for the customers overall well being and lots of phone calls. It isn’t unheard of for a collector to suggest a borrower take a payday loan or title loan to pay off their delinquent debt to the mortgage company. This is the point where you start to see people lose their cool, the bonuses for meeting goal can be quite substantial giving the collectors a big incentive to disregard what is best for the borrower and look at what is best for them. This is the unfortunate truth and greed of the collections world.

*When I talk about my collections experiences you may see me use the terms repossession and foreclosure interchangeably. To me they were mostly the same term since I worked as a collector for a company that did loans on mobile homes. If a mobile home had no property financed with it it is treated like a vehicle and registered with the Department of Motor Vehicles (DMV). You don’t foreclose on a car you repossess it, the same holds true for non-land deal mobile homes.

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Recently, when visiting MyFICO.com, I looked up the question, “How do I go about building my credit history.” This website that’s the authority on credit scores gave me two options:

  • Apply for and open a new credit card.
  • Open a secured credit card.

Wait a minute…does that mean that in order to get a credit history, I have to get a credit card? After a bit of research, I was pleasantly surprised to find out the answer is NO! While you will need a loan in order to build a credit history, that loan doesn’t have to come from a credit card company. There are several ways to build a credit history and get a credit score without getting a credit card:

  • Borrow from Yourself – This is the easiest method to establish your own credit history without a credit card. Buy a Certificate of Deposit (CD) from a bank. Then take out a secured loan against the CD for the same amount of time. Put the money you borrowed in a high-yield checking account. Then use the money you borrowed to payback the secured loan. You’ll be establishing a credit history and earning interest on your checking account and CD. There are some downfalls to this method. You need the starting capital to fund the CD. You could end up paying more interest on the secured loan than earn through your CD and checking account; however, it’s probably less than what you’d pay in fees and interest if you used a credit card. Just make sure to weigh the true costs before going down this road.
  • Federal Student Loan – There are several requirements to be eligible for federal student aid however, an established credit history isn’t one of them. As long as you’re going to a school that participates in federal student aid programs and meet the other requirements, you can take out a federal student loan. The interest rate for a new subsidized and unsubsidized loan generally has a fixed interest rate of 6.80%, which is substantially better than a typical credit card interest rate. The only catch is that your lender may not begin reporting the loan until you begin paying it back. So if you wait until after college to begin paying back your student loan, it could take years to establish a credit history.
  • Co-signing a Loan – Many banks will provide a loan if you have a co-signer with a good credit history. However, it may be difficult to get someone to co-sign on a loan, because of the inherit risk associated with it. If you’re lucky enough to get a co-signer, make sure that you make timely payments because with this method, it not just your credit history at risk. Your payment history will also affect the co-signer’s credit history. An alternative is for you to be the co-signer. If you know someone that has a high credit score, is responsible and taking out a loan, you can “game the system” by being their co-signer. As they make timely payments on their loan, they’ll be helping you establish a credit history . Be warned, if they default or make late payments, this will negatively affect your credit score.

While you’re building a credit history, it’s a good idea to keep an eye on your credit report. You can sign up for a credit monitoring service or get your free annual credit report at AnnualCreditReport.com. Make sure to review what’s listed and dispute any credit mistakes. If there are mistakes with more than one credit bureau, you’ll need to address them separately.

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How Long to Keep Tax Returns

January 26, 2010
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How long you should keep your tax returns, and supporting documentation, is an issue of much debate in the personal finance world. Some people say seven years, some people say keep it forever, and some people say it isn’t worth the space. Ok well most people probably don’t say it isn’t worth the space but […]

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Get Organized for Tax Season

January 25, 2010
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Tax season is upon us, today I gave away four gift cards for TurboTax Deluxe to four of my readers and that got me thinking about my own taxes. How organized are you for your current, and prior, years tax returns. The 1099′s, 1098′s, W2′s and everything else should be trickling in by now and […]

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