Debt Column


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5 Smart Ways to Use Debt to Improve Your Life

Generation Earn: The Young Professional’s Guide to Spending, Investing, and Giving BackKimberly Palmer is the author of Generation Earn: The Young Professional’s Guide to Spending, Investing, and Giving Back, which was published by Ten Speed Press this week. The following post has been adapted from the book. She’s also the author of the Alpha Consumer blog at USNews.com, where she’ll be hosting book giveaways all week.

Shortly after meeting my husband, he tried to convince me that debt was a good thing. His student loans, after all, were not only funding his tuition but also many of our first dates. Using something called the “income smoothing theory,” he argued that it was better to borrow now, when we had little money, so we could live better than we otherwise would, and then pay it back later, when we (hopefully) had steady incomes. (Of course, to us at the time, living well meant being able to buy cheap Thai food and beer.)

While his theory falls apart if it’s taken to extremes, for the most part it makes sense. Debt can be a very good thing, as long as you use it wisely. Here are five ways you can use debt to improve your life.

For those of you expecting another installment of Scam Week, I thought we’d take a little break mid-week. I’ve been friends with Kim for a while and with her book coming out, I thought having a guest post by her would be a nice change of pace. I hope you enjoy it!



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Debt Collector Crusader Craig Cunningham in Dallas Observer

When I wanted to run a series on fighting debt collectors, I knew I wanted an expert. I was fortunate to have little in the way of debt (just a mortgage and student loans) so I had no personal experience with combating with debt collectors, but I knew someone on Fatwallet, Codename47, was a debt collector ninja. I had seen all his posts, how he helped people deal with unscrupulous debt collectors, and I knew he was our guy.

I, and hopefully you, weren’t disappointed. I called him the real deal before he wrote a single post, that’s how confident I was, and after the series was complete, I think we can all agree.

Recently, Craig was in an article by Kimberly Thorpe for the Dallas Observer. In it, we get a better understanding of why Craig has so much insight (bad bets and a lot of research!) and how people like him are fighting back against the system.

As you read his story, there are two things I hope you to notice – he never plays the victim and he never blames anyone for his debt. He took some bets that turned out badly and now is simply playing the game by the rules, catching debt collectors with their pants down.

I, for one, am glad to see a “little” guy giving the big bad debt collectors a run for their money. Serves them and their predatory practices right.

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Borrow Money With Prosper & Lending Club

Earlier this year, I hosted a guest post by Jonathan sharing his experiences with borrowing money from peer to peer lending network Prosper. Just recently, I received the following email from a reader singing their praises:

I’ve borrowed twice now from Prosper and I love it. The first loan was $7000 at 8.65% for three years and the most recent was $8000 at 9.65% for three years. I got the 2nd in response to the credit cards jacking up my interest rate and slashing my credit limit no reason. I was so angry about the credit card behaviors that I wanted to get my debts as far away from them as possible.

There is no hassle, I applied for the loan, watched people bid the initial interest rate down, and eventually got the cash. Once the loan was funded, they called me to verify who I was. You have to provide documentation that you are who you say. They direct deposit the money into the account you specify a day or so later.


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Debt Severely Limits Your Options

Debt Eraser!A couple months ago on the Personal Finance Hour, I had a nice debate with Baker of ManVsDebt.com about whether one should go with credit cards or with a cash-only system. In that episode, I mentioned that I was fan of credit cards because of their rewards and that I have never carried a balance on any card. If I had, my tune about credit card rewards might be a little different. Paying 20% in interest really makes 1% cashback look a little foolish. :)

A point that I never got to make, in part because it was a little off-topic, was that I never had consumer debt because I thought that debt limited your options. Making money is hard enough as it is, you don’t need to be giving up some of it to pay a credit card company for something you bought years ago. Scraping up enough for a down payment on your first home was and is still very difficult. I didn’t need the added pressure of consumer debt following me everywhere I went.

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How Dave Ramsey Helped Me Pay Off My Debt

Dave Ramsey's Total Money MakeoverLate last December I came across a post on Bargaineering about Dave Ramsey’s book, “The Total Money Makeover.” Prior to this, I had never heard of Dave or his somewhat controversial teachings (e.g., he recommends folks pay off their debts from smallest to largest, regardless of interest rates, he quotes Bible verses – though mostly to share common sense financial wisdom, etc.).

Somewhat intrigued, I picked up a copy of the book and read it in about 24 hours. The writing style was engaging and the book really spoke to me. It caused me to sit down and take a long, hard look at where I was financially, a decade plus out of college… The picture wasn’t pretty; a good retirement account, almost no savings, credit card debt, a car loan that was underwater, and incredibly poor spending habits. Today, 11 months later, I am debt free (other than the house) and feel fantastic. If I can change my ways and eliminate more than $25k in debt in less than a year…anyone can.

So how did I do it?

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How to Sue Debt Collectors

Lawyer BooksNow that you are aware of what happens when debt collectors violate the FDCPA and you have some recorded phone calls, credit reporting violations, and false or misleading statements by a collector, what do you do then?

You sue them.

Nothing gets a company’s attention like slapping them with a lawsuit. As the saying goes, it’s all fun and games until someone gets sued.

From here, you have two choices and both will take you to the courthouse:

  • You can retain a lawyer to represent you, or,
  • Do it yourself.

I’ll explain both.

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Understanding 1st Party and 3rd Party Collectors

I have been following the How to Fight Debt Collectors series and noticed that the articles are all geared towards third party collections. For 3 years, I worked as a first party collector in the collections department for a mortgage company.

During that time, I learned a lot about debt, people, and collection law. I did some things that may have been considered shady but I never broke the law. The reason is in the distinction between 1st party and 3rd party collections.

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What are Junk Debt Buyers?

So many bills!Junk Debt Buyers, also called JDB’s, engage in the business of buying distressed assets at pennies on the dollar and then try to collect on that debt. Sometimes they try to go after the full amount, sometimes they’ll accept a settlement amount of 50% or less. It’s not a bad business to be in, except they suffer from one very crucial weakness a smart debt collection fighter knows. When challenged, they can rarely obtain any sufficient documentation of the debt. In other words, they can’t validate the debt after someone has sent a debt dispute letter!

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