Posted: December 31st, 2009 | Author: Joe | Filed under: Debt, Tips | Tags: Debt, debt management, debt settlement, Reverse Mortgage | 1 Comment »
What can you do when you don’t have health insurance and you can’t pay your medical bills that have been sent to a collections agency?
Well, that’s the question recently fielded by Bankrate.com’s Justin Harelik.
The reader’s mother has been dealing with bills for her open-heart surgery that were sent to collection in 1996! She worked with the collectors to lower the monthly payments to something she could afford on her social security payments, but now the agency is expecting her to pay the full $20,000 outstanding balance. This seems incredibly unfair, since she’s paying them in good faith and they are cashing the checks, but apparently it is perfectly legal for them to do.
Here are the 4 options laid out by Mr. Harelik:
Negotiate a settlement with the collection agency.
The upside: She could get a significant amount of the debt eliminated.
The downside: The agency would likely demand a large lump sum payment that she probably doesn’t have.
File for bankruptcy.
The upside: It would eliminate the debt obligation completely.
The downside: It would cause some damage to her credit history and she may need to hire an attorney, depending on what assets she may have.
Take out a reverse mortgage.
The upside: She gets monthly payments based on the current value of her home, and can make larger payments to the collections agency.
The downside: She would have to own her home outright (with no current mortgage), it could be a costly and time consuming process to put in place to meet the requirements of the collectors. A reverse mortgage would also decrease the amount she could make by selling the property, and leave less to bequeath to relatives upon her death..
Hire a law firm to protect her Social Security checks.
The upside: She doesn’t have to worry about the collection agency placing a levy on her bank account and taking the payments before she has had the chance to spend the money on heat and food bills.
The downside: It will cost a lawyer’s fee and she will still have to make monthly payments to the collection agency to pay off the debt.
Given the list with the pros and cons, it’s easy to see why Mr. Harelik recommended option 4. 
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Posted: December 30th, 2009 | Author: Joe | Filed under: 10 Investment Tips for Beginners, Credit, Debt, Economy, Investing, Scam | Tags: 401(k), bailout, blogging, Cramer, Credit, Credit Cards, Debt, Investing, Stock Market, Stocks | No Comments »
What a year it’s been!
As the history books close on 2009, I thought it might be nice to take a look back on the topics that were hot on Simple Debt-Free Finance over the past year.
2009 saw a lot of talk about the future of the 401(k). It seems only natural, given that it is one of the major means of saving for retirement for many American workers who had just seen those savings drop like a stone in the 2008 stock market crash. A lot of the talk was centered around ways to “fix” the 401(k) when it isn’t broken. This bothered me enough to blog about it in that post as well as Fixing What Isn’t Broken and Why 401K Retirement Plans Really Don’t Work And How To Fix Them
Many workers, like myself, saw their company contributions to 401(k) plans cut or “temporarily” suspended. My response to that was to give my 401(k) some TLC, a move which paid off when my balance returned to pre-crash levels in the 3rd quarter of 2009.
Bank Failures.
Another hot topic of the beginning of the year was bank failures. So many failures naturally led many to wonder what the FDIC insurance limits cover.
Investing.
2008 was a big year for gold, and 2009 was even bigger. Such a bullish environment for gold led Rosland Capital to offer Gold Eagle coins for IRA accounts.
The 2008 crash created an historic opportunity for investors to “buy low”, but it also offered many reminders of what not to do. To that end, I shared Jim Cramer’s 10 commandments of stock trading.
Since the crash created a great opportunity for new investors to get into stocks at levels unseen in a decade, I put together a list of 10 investment tips for beginners:
1 Follow The Rules
2 Be Aware Of Taxes
3 Don’t Confuse Investing With Trading
4 Tune Out The Media
5 Don’t Tune Out Too Much
6 Pay Attention To Risk
7 Don’t Avoid Reality
8 Don’t Fall For Hot Stock Tips
9 Don’t Try To Time The Market
10 Try Before You Buy
In other news, some investing sites seemed to want to attack index fund investing in all the wrong ways. I had to respond to their criticism of index fund investing.
Kiplinger was nice enough to provide a 1st phase of credit card consumer protection rules went into effect.
I had a couple of posts about 0% balance transfer offers, mostly because 0% balance transfer offers were coming to an end at the same time my wife received a 0.99% balance transfer offer.
Since it seemed to be a hot topic, for me anyway, I decided to share 6 things you should know about 0% APR credit card offers.
And all this at a time when Bank of America began imposing fees for paying off your balance… idiots!
Government Bailouts.
2009 is likely to be remembered best for the bailout craze that gripped the auto sector, bank sector, heck – the entire nation!
credit card consumers got a bailout, the NASDAQ released a “government relief index” for tracking bailed out companies and cash for clunkers gave charities some competition
What would a debt blog be without posts about, well, debt?
The year started out with discussions about toxic debt and ended with the mortgage debt relief program going until 2012.
In between was some discussion of whether debt settlement is a good idea, and why debt consolidation is (sometimes) a scam. When it’s not a scam, debt settlement and loan consolidation just doesn’t work, and you’re much better off taking a DIY approach to debt consolidation.
And just to round out the debt consolidation talk, I shared how it affects your credit score.
I asked, “Why are you in debt?”, but not too many people answered, so I got the top 10 causes for debt from BankRate.com.
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Posted: December 30th, 2009 | Author: Joe | Filed under: Debt, Economy | Tags: default, private student loans, Student Loans | 2 Comments »
It’s a sign of the times. Foreclosures are up, bankruptcies are up. Unemployment is up. Incomes are down. It’s only natural that the rate of default on student loans is on the rise as well.
For example, this story from the StatesMan shows that the data for the last 3 years show more defaults on college loans.
More than one in five recipients of federal student loans who attend for-profit colleges default within three years of beginning repayment, figures from the U.S. Department of Education show.
To put this into perspective, that’s 20% of borrowers. The historic figure is 6.7% of all student loan borrowers, and 11% of for-profit school attendees typically default. For-Profit schools include trade schools and small campuses with traditional bachelor’s programs.
That’s a nation-wide figure.
Here’s a story on the number of federal student loan defaults spiking in New Jersey
The number of New Jersey college students who left school in 2007 and defaulted on federal loans nearly doubled over the past fiscal year, according to data released yesterday by the U.S. Department of Education.
That’s a jump from the typical 6.2% to 11.3% in one year! At for-profit colleges the rate was 25% of borrowers.
Things aren’t so great in Minnesota either, where Data shows 1 in 20 Minn. students default on student loans.
Number one on the list is Duluth Business University with a default rate of nearly 35 percent.
Almost 29 percent of students who borrowed student loans to attend Rainy River Community College defaulted on their loans.
The bright spot for Minnesota is that Minnesota’s public four-year colleges have an average default rate of only 3%.
And in South Carolina, Allen University has highest student loan default rate: 26% of student loan recipients who went to Allen University and whose first loan payments came due between Oct. 1, 2006, and Sept. 30, 2007, were in default by Sept. 30, 2008.
None of this should bee surprising. College costs have been skyrocketing and far outpacing inflation and incomes for decades now. And double digit unemployment doesn’t help any either. When faced with a choice between paying the rent, groceries and student loans, the rent student loan payment will always lose out.
Maybe this will provide incentive for some pressure on colleges to lower their costs, though I doubt it.
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Posted: December 29th, 2009 | Author: Joe | Filed under: Debt, Tips | Tags: loan modifications, Mortgages, NPV, refinancing home mortgage | No Comments »
Those homeowners looking for a mortgage modification may have a new hurdle to clear. It’s called the NPV test, and it’s largely a mystery to all but the lenders using it. While the inner workings of the test are hidden from the outside world and may be complex, the result is simple: pass or fail.
If you pass, you are still on the road to modification, but if you fail you are done.
NPV stands for Net Present Value. It’s a method for determining which action is more likely to make a profit, or lose less money.
In the case of mortgage modifications, the lender uses the NPV to determine whether modifying the loan and accepting lower monthly payments is more cost effective than possibly foreclosing on the property.
It may not be as simple as it sounds because many homeowners who have had their mortgage modified simply delay the inevitable and end up in foreclosure anyway. So, it seems likely that the NPV formula takes the risk of re-default into account.
What you can do about it.
Unfortunately, not much. Since the formula is a closely guarded secret (on par with that of FICO) it’s impossible to know exactly what information is used and how it is weighted. This makes it very difficult to affect the outcome. Still, there are some actions that Bankrate.com recommends taking if you find yourself in this situation:
- Declare loudly and repeatedly that you are determined to remain in your home (assuming, of course, that you are). Be sure to explain why you don’t want to lose your home, and how you’ll do just about anything to keep it.
- The government’s home value projection figures are updated at the beginning of every quarter. If the trend is headed in your favor and you’re close to the end of the quarter, you may try to delay until the next quarter begins.
In addition to the redefault rate, there is speculation that the NPV makes guesses about the following:
- How long until the average redefault
- How likely you are to catch up on your current mortgage if it is not modified.
- How much your home is currently worth
- How much your home will likely be worth 12 months from now.
- How much a foreclosure would cost the lender
- How much your house might sell for at foreclosure
As you can see, much of those questions are difficult if impossible to know for any single case, so the NPV formula must be some sort of actuary table much like the kind used for insurance; taking the likelihood of each in the aggregate of mortgages to make a “best guess” at each answer.
The bottom line is that your life would be much better if you can avoid this situation.
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