As a result of working in the defense industry, I’m very cognizant (as is anyone who works in this industry) of the impropriety of any sort of kickback, whether it’s something minor like lunch or something huge like … a job. However, kickbacks are a way of life in the private sector and so it’s always surprising when you see a story about something semi-private get busted for accepting kickbacks. In the last year, you’ve seen lots of 401k plan administrators come under the microscope for accepting kickbacks for offering certain funds… but most recently, it look like eight universities have been settled allegations for accepting “payments, travel and other perks” from lenders.

My fiancee used to work at L’Oreal in their purchasing department (she was a trained biomedical and chemical engineer, but go figure how big companies do business) and would get free lunches all the time from vendors selling things like labels and plastic bottle caps (she worked in hair coloring). I spent a few months working as a materials manager (rotational program and that rotation, not doing software development, was probably the best rotation I ever had…) and had to be very cautious in accepting anything from anyone because kickbacks are a huge no-no and being caught accepting one had serious repercussions.

I only had government backed loans (Stafford, Perkins) in college but this probe investigates the “private” loans, those that aren’t backed by the government, and so it’s appropriate that universities don’t receive kickbacks for offering a particular bank’s loan - especially if that loan isn’t in the best interests of the students. I didn’t even know that universities accepted kickbacks but I think that was naive of me. If there is every a gray area and an opportunity to exploit it, someone will until an attorney general shuts it down (way to go New York! Eliot Spitzer really set the tone… and now Andrew Cuomo is continuing the tradition).

I’m glad someone with visibility into these types of issues is able to watch the consumer’s back.

The writer of Blueprint for Financial Prosperity will accept kickbacks in the form of “payments, travel and other perks” and it is not illegal for me to do so. So please, someone send me two tickets to somewhere warm and sunny.

If you had a 30 year fixed mortgage of $300,000 at an interest rate of 6.00%, you’d pay $1,798.65 each month or a total of $647,515.44 over the life of the loan. That’s $347,515.44 in interest over 30 years, or about $10,000 in interest each year (given amortization, you pay more of that interest in the beginning of the loan but the principle still applies).

What if you paid an additional $50 a month? You’d shave $29,211.36 off your total payout (this includes the extra $50 a month) and close out your mortgage 25 months early.

What if you paid an additional $100 a month? That’s a savings of $53,346.83 and be done 47 months early - nearly four years.

If you opted to send an even $2000 check each month (an extra $201 payment), you’d save $91,499.07 and close out the mortgage in 279 payments - or 82 months early.

Want to see your particular situation? Put the numbers through this mortgage loan calculator at Dinkytown.net and see for yourself. It makes a huge difference if you are able to do it.

There have been a lot of articles lately about the subprime lending industry (is anyone else not surprised these sort of shenanigans happened during the last housing boom?) and how a lot of homeowners who stretched to get into a home with an adjustable rate mortgage are now finding themselves being whalloped by higher payments. Personally, I can totally understand why people would get an ARM because while you don’t get “fixed” payments, you do get to move into a home now and you can always refinance. Herein lies the problem now, people are being screwed because their lender said they could always refinance after the 3 or 5 year mark, when the loan becomes adjustable, but they can’t because their credit isn’t good enough. While that is a problem, there’s also another one out there that isn’t get as much attention (because of the subprime lending story): those folks who stretched to get into a fixed rate mortgage but are seeing their monthly payments rise because of other factors - like real estate taxes!

When I purchased my home almost two years, the escrow on the mortgage was figured using the existing real estate taxes for the first year. In the second year, the escrow has a shortfall because the real estate taxes had increased because the value of the home increase from whatever it was to the purchase price. That, plus some other escrow items, increased the mortgage payment by a good 30%! Certainly that’s not like some of the other scary stories you hear about how mortgage payments doubled for some homeowners with ARMs, 30% is something that can destroy your finances if you don’t have any buffer built in.

So, for all you folks out there who think fixed means fixed forever, just remember that there are components in your mortgage that will always go up and so you have to be ready to weather those storms as well.

(Here I was thinking I had this awesome idea for a post and Mapgirl beat me by nearly a month!)

I have a friend of mine who is going to be moving to and working in England for the next two years and sent me a question I had never before researched or read about before. A brief look online didn’t yield much in the way of answers because most of them focused on the mechanics (my friend can just send a check to her mother) and less on trying to reduce the financial burden of handling all those transactions so I’m at a loss as to what to suggestion.

She essentially will be paring down to two financial obligations: credit card(s) and student loans. In both cases, she really can’t eliminate them to reduce the burden of exchange rates and exchange fess. Currently her plan, until she finds an alternative, is to send checks in pounds sterling back to her mother and she’ll take care of paying the bills.

So, once again, I turn to the very resourceful readers for guidance: Does anyone have experience with this sort of issue and have any suggestions as to what she should and could do? Thanks! (from her and from me!)

Is debt slavery? Not technically, but Debt is Practically Eternal Indentured Servitude simply wouldn’t make for a very readable title now would it? The book itself isn’t much to look at, a svelte 122 pages written by a guy who doesn’t make the personal finance talk show circuit, he doesn’t appear on television or radio, and a picture of his face isn’t even in the copy of the book I have. In that way, Michael Mahalik is exactly the type of person you want writing this type of book. Suze Orman isn’t in debt. Ben Stein certainly isn’t in debt. David Bach? No way. If a fellow like NCN wrote a book, it would be this book, it would speak to you as a regular person, and it would be helpful to someone actually in debt. Automatic Millionaire? That’s great when you’re not $15k in the hole with that hole getting even bigger every month.

The full title is Debt is Slavery and 9 Other Things I Wish My Dad Had Taught Me About Money and this is where Michael started. He had $10,000 in debt on 10 credit cards, $13,000 in a car loan, $2,500 in a student loan, $535 on a medical bill, and, as if all that weren’t enough, poor guy had a $1,500 loan for an electronic keyboard. He was only 24. Yeah he knew he lived beyond his means, he doesn’t have any reservations about his foolish decisions (or at least his foolishly timed decisions), and that first step of acceptance is always the first step in dealing with anything.

Overall, I think the book comes at you from a great perspective, that of someone in debt who has overcome it; but I find it difficult to analyze from that perspective because I’ve had the fortunate luck of not having been in credit card debt (though a mortgage and student loans do at times feel quite heavy) but I feel as thought Michael isn’t speaking to me from a perch. He’s not teaching me, he’s just talking to me like an uncle who is smarter than me would, and I think that resonates with them. The book is ten bucks from Amazon, so it’s pretty afforadable, but let me give this bit of advice - if you have $10,000 in credit card debt, borrow this it from the bookstore and send the ten bucks to Visa, MasterCard, or American Express. It’s a good book, no doubt, but I bet Michael would advise the same.

I recently received another email related to debt that I’m wholly unqualified to answer so I’m posing this up to everyone who reads in hopes that you will be able to help this person out. The last time I did this there was a lot of supportive comments and I hope this time maybe you could give more suggestions if there are any out there. Without any experience with massive credit card debt myself, I just didn’t feel qualified to speak on the subject and dispense any sort of advice.

Hi Jim,

I came across a link to your site on bloggingawaydebt.com several days ago. I read and appreciated the referenced article. I knew I had some debt to deal with but since reading your article, things have become more urgent. Of course now I can’t find the link to the article on your site I read originally, but I’m reading plenty of your articles and decided to contact you. Below is my story. I would really appreciate any information you can pass to me.

My situation is a little unusual as it’s not new debt or current debt. I have no credit cards and haven’t for quite some time. I had a company that failed and suddenly found myself without income and unable to make credit card payments. I kept looking for work, but only found temp or very part-time work with not enough to support myself on, living with relatives, etc. My creditors finally gave up on me, particularly when I commented they were eventually going to cause me to have to file bankruptcy (NO, I don’t want to do that!).

Fast forward several years. I began working one almost full-time job, retail, almost two years ago. I was working two part-time jobs beginning a year ago and finally moved out on my own March 2006. In October 2006 one of the part-time jobs became full-time and I’m still working one additional day at the original retail job. I’m living in a rented home I pay only $550/month, but I still have utilities and other living expenses, repaying a personal loan from a friend for a car, car insurance, etc., so I can get to work. I’m also paying off a student loan and paying $25/month to the IRS for 2005 taxes I couldn’t afford to pay at filing time, because some of my 2005 income I was 1099ed.

Still with me? A couple days ago I got a letter from my largest creditor. I haven’t responded yet. I’m looking at what I’m making (netting approximately $1330/month) and what I owe them $13,000+ and I don’t see any way I can offer them a large enough monthly payment to make them want to settle with me. BUT, I owe a total of almost $40,000 (yes, I had excellent credit at one time) and I know it’s only a matter of time before those other creditors come knocking on my door. I don’t know what to do. I’m so overwhelmed and stressed over this. I thought maybe I could find a free debt counseling service somewhere, perhaps a senior service as I’m 58, but I don’t know where to look, and really, what can they advise me? I’m so afraid I’m going to have my wages garnished and lose my job and then where will I be? I won’t even be able to support myself. I’m trying so hard not to become a burden on society, but I’m just at the end of my rope. Do you have any suggestions or resources for me?

ps: On reading the comments to article Paying Off A Debt in Collections, I noticed the last comment by Ralph (comment 17) mentioned a judgment and then a collections company Asset Acceptance. This is the same company that is contacting me. So, it’s a collection on a judgment? I suppose that changes things. *sigh*

One very good trend I’m noticing is that most of the people who do email me have turned things around and are just looking to make things right, which is great. Again, if you have any tips, please do share… collection agencies are horrible horrible creatures (there’s got to be a better way to make a living than by harassing other people).

If you’re a 0% balance transfer arbitrager, you probably have a couple credit cards siting in your desk drawer collecting dust because you weren’t sure whether you should cancel them after the balance transfer promotion period. Not canceling them certainly helps your credit score (lower credit utilization, longer credit history) but the downside of that was that you couldn’t reapply for those cards a few months later and take advantage of another balance transfer - or so I thought.

I was poking around the balance transfer offers of my Citi cards when I discovered that my Citi Platinum Dividend Select, the one that dropped the cash back benefit on gas stations, supermarkets, and drugstores from 5% to 2%, listed a 12 month balance transfer offer at 0% with absolutely no fees! I had kept the card, using it only when shopping for groceries, and I’m glad that I did because this means I can get a free 0% balance transfer (i.e. no credit check). Does this mean that you should keep old cards around in the event they decide to offer you a fat balance transfer? My only expired balance transfer arbitrage play was on my Citi mtvU card which I’ve kept because it offers a nice 5% at restaurants and bookstores, but I’ve looked a couple times and haven’t seen any nice offers in there. Anyone else find a resurrected offer?

Living with debt is difficult, but instead of complaining and lamenting, Tricia has taken to blogging about it at her site, Blogging Away Debt, as a way to motivate herself and educate others. When she wrote her latest balance report, I saw that she managed to get the interest rate of her credit card debt lowered from an aggregate of 20% to only 5% - so I asked her if she’d be willing to write about it, and she was. This is a real life experience, not hollow advice written by writers who aren’t in debt but pretending they are, so if you’re dealing with debt, this is the article for you. Want proof it works? Tricia has chopped off over $14,000 in credit card debt in a little over a year.

Jim noticed my post the other day on how much I am paying in finance charges monthly. He asked if I would write an article on how I managed to reduce my finance charges from over $400 to $100. It took about five months to reduce them that far, and here’s how I did it.

1.) Tried calling my credit cards to see if they would lower my interest rates

The first time I tried calling my highest interest rate credit card (16.49%), they wouldn’t lower my interest rate. There were no available special rates for me. It finally did work for me once I started aggressively paying off my debt and I was able to get my rate lowered to 13.9%. Even if you can only shave 1% off of your interest rate, the few minutes it takes to make the call can be worth it. If it doesn’t work the first time, keep calling back monthly.

2.) Paid off as much of our debt as I could

Part of the reason I wasn’t a “good” customer in the eyes of my credit card companies was because my credit cards were almost maxed out. That meant my debt to utilization was almost at the maximum. At the start of my debt reduction journey, I was fortunate to have just started a new position and with that position it meant a higher salary. We kept living the frugal way we had been living and we paid off as much of our debt as we could with leftover income. Extra money from side jobs and our tax refund also went towards our debt.

3.) Worked to increase my credit score

My credit score wasn’t horrible. It was at 711 when I first started my debt reduction journey last year. While the biggest negative factor with my score was the fact I had so much credit utilized, I still made sure that all of my bills were paid on time and I didn’t close any credit lines. Paying bills late and closing credit lines can bring down your score.

4.) Took advantage of balance transfer offers

Every balance transfer that arrived in the mail was carefully scrutinized. How much is the interest rate? How long does the rate last? How much is the balance transfer fee? After getting those key pieces of information, I compared that offer to my current situation. If the balance transfer fee wasn’t too high and the offer lasted long enough (for me it was 6 months), I would shift my debt from card to card. (BFP’s list of cards with 12 month 0% balance transfer offers)

5.) Used my husband’s cards

Between my husband and I, we only have one joint credit card. The rest are either in his name or my name. For the most part, our credit card debt was evenly split. I strategically used one of his cards to take some of the balance from my cards so I could increase my credit score by decreasing my debt to utilization ratio. That helped me obtain a new credit card with a nice “0% interest for 12 months with no balance transfer fee” offer. That card is holding almost $7,000 of our credit card debt at 0%. If you have a spouse, this is definitely something you can
keep in mind when shuffling around debt.

6.) Looked around for other ways to decrease my interest rates

Since I was blogging and learning about finances, I heard about Prosper.com. It’s a site where everyday people go to lend and borrow money. With the guidance of another blogger, I decided to list a loan on Prosper to see what happened. At this point, all of my debt was under 9.9% except for $3,500 sitting at 13%. I placed a listing for $3,500 and a week later I had a Prosper loan at a 9.9% interest rate. All of my debt was now under 10%.

And that is where my debt stands today. All of it is under 10% and a majority of the debt is at 5.9% and 0%. Jim did a rough calculation and figured out that I’m “only paying around 5% in interest to service $25,000 in essentially unsecured debt.”

While I am pleased at my overall interest rate, I am always on the lookout for better interest rate offers. In the meantime I am still paying off more debt and working to raise my credit score. Paying less in finance charges means more of my payments are going towards my principal balances

Tricia also blogs at Quicken Head.