College Debt for Life?

When I was in college in the '80s the growth rate for college tuition was 10% much higher than the rate of inflation at the time. And it appears that things have not changed since then. The cost of college continues to growth faster than anything else and beyond reasonable expectations (see graph at right).

The result is that many Americans now graduate with a huge debt that takes decades to pay back and prevents them from buying a house and otherwise establishing a normal middle-class life.

What was new to me this morning is that even senior citizens are affected by college debt. SmartMoney.com reports the Federal government is docking an increasing number of Social Security payments to pay back college loans, up to 15% of the monthly benefit. Now these are not deadbeat seniors who failed to pay back their own loan after 40 years but rather parents & grandparents who co-signed loans for their children or grandchildren.

So beware, co-signing a loan can follow you into retirement!

Money Tips for All Ages

The FDIC (Federal Deposit Insurance Corporation), the government corporation that insures bank accounts, has published a booklet with Money Tips for All Ages
http://www.fdic.gov/consumers/consumer/news/cnspr08/spring_08_color.pdf

Topics include:

• Practical Advice for Everyone
• For Teens: How to Ace your First Test Managing Read Money
• Young Adults: What to Know Before Declaring Your Financial Independence
• Newlyweds: Staring a Household on Solid Ground Financially
• Midlife: Multi-Tasking
• Parents: Teaching Children
• Before Your Retire: Getting Ready for the Golden Years
• After Your Retire: Living on Reduced Income
• Caregivers: Helping Disabled or Elderly Relatives
• Life Events: Ways to Cope with Big Changes

http://www.fdic.gov/consumers/consumer/news/cnspr08/spring_08_color.pdf

What if your bank failed to deposit your paycheck?

One piece of emergency prep advice that is often overlooked is to have some emergency cash at home. The typical reason given is that major storms will knock out power so ATMs won't work for several days when you might need cash to buy supplies or pay repairmen.

And now a recent event in England gives another reason...

Many people live from paycheck to paycheck with no reserves or savings. In June NatWest Bank had a computer glitch that failed to update customers’ balances overnight on a pay-day. Customers using ATMs or online found that their paycheck was not there! What did the bank do?  It apologized and promised to fix the problem “as soon as possible” (Wow what service!) It also said "no customers would be left permanently out of pocket" (huh, does this mean instant loans?) and kept 1000 branch offices open until 7pm just in case you had a day job.

Customers were not amused.

What happens when a country runs out of money?

John Donne once wrote, "No man is an island, Entire of itself. Each is a piece of the continent, A part of the main." What is true of humanity is doubly true for countries, even island nations (metaphorically speaking).

The nation of Greece is a study of what happens when a country cannot pay its bills. And when a majority of the people rely on government benefits and subsidies, the people suffer then the money stops flowing.

According to JohnGaltFla.com

Migrants are being attacked and are desperate to leave the country. Pharmacists are now refusing the government benefits card and demanding cash only for life saving drugs because they fear not being paid in Euros by the Greek bureaucracy, as payments are already many months behind in reimbursements. Sadly, soup lines are the longest since the end of World War II as the middle class has fallen into dire straits of poverty, forcing dumpster diving by parents and children around the nation.

And it is expected to get worse. Greece imports 40% of its total food supply and exporters from other nations no longer trust Greece pay its bills in a timely manner (if ever). Typically in such circumstances Greece would pay on credit or else shipments would be insured against default.

But the lines of credit for many importers in Greece has already been greatly reduced if not outright terminated by many European companies due to the crisis.

And

a more dire blow was struck this week when several major insurers declined to cover shipments of goods into Greece in case there is a default on payment.

Could this happen in America? The US government ignores debt risk and says, we can just print more money. But all countries are part of a larger global economy and if other nations stop trusting a currency or ability to pay, then the country is doomed.

The check is in the mail

CBS news Los Angeles has an interesting story about identity theft. A church reported its bank account information was stolen and used to counterfeit checks of $1,100. Detectives traced the ID theft to an LA couple "where they found hundreds of bank account numbers, fictitious and stolen IDs, check manufacturing equipment, identity profiles and counterfeit checks, according to officials." In total this couple had stolen more than $16,000 from 20 victims.

How were the bank accounts stolen? The couple admitted to dumpster diving at a Self Storage company "and stealing hundreds of partially-shredded checks, which they reassembled to access the routing and bank account numbers. Detectives say they used the information to manufacture more than 30 counterfeit checks" which they used throughout the region.

When you dispose of a check be sure that the routing numbers at the bottom are unreadable. You might cover it with a permanent black marker or tear the numbers into tiny parts and dispose of the bits in different places.

When the US Embassy in Iran was taken over back in the 70's the US diplomats dutifully dumped all sensitive documents into a cross-cut shredder. The Iranian government collected the shredded bits and gave them to their best carpet weavers who pieced the documents back together again.

So even a good shredder won't help you if you dump the bits in one place and a determined thief wants to put them together again. Try cutting checks in two or more parts along the routing number and shredding each part separately into a different bag.

Will that be Debit or Credit?

The Consumerist describes 5 Situations Where You Shouldn't Use A Debit Card,

1. When shopping online or making a large purchase:
   If you use a credit card you may be able to dispute a damaged or missing item from your order through your credit card company. Some credit cards also offer extended warranties.
2. While traveling:
   Some credit cards offer services when traveling like insurance coverage and concierge services.
3. When worried about begin ripped-off:
   With a debit card you must report fraud within two business days of discovering the problem or you can lose up to $500. With credit cards, you're loss is limited to $50 for unauthorized purchases.
4. When you want to raise your credit score.
   Debit cards won't help your credit history.
5. When you want to earn money on purchases.
   Most debit cards are cutting back on rewards to save money.

Important Age Milestones when Retiring

The Money column at USNews has identified several critical ages on the road to retirement. Personally I'd love to retire early but it will be many years before I can touch my 401-K without penalty and private health insurance is terribly expensive.

• 59½. Earliest age for withdrawals from tax-deferred retirement accounts like 401(k)s, 403(b)s, and IRAs without a penalty.
• 62. Earliest age to collect Social Security benefits. But you may want to wait. If you collect at 62 you'll only get 75% of what the government will pay if you wait until 66 or 67 (for people born after 1943).
• 65. Eligible for Medicare benefits. If you don't have employer insurance then pay attention to the seven-month window (three months before 65 up to four months after your birthday) to sign up. If you miss this window, you may wind up paying higher Medicare premiums for the rest of your life.
• 66. Your full retirement age (FRA) for Social Security benefits if born between 1943 and 1954, 67. Your Full Retirement Age if born in 1960 or later.
• 70. The oldest age at which your Social Security benefits increase if you defer collecting. After your FRA benefits rise by about 8% a year each year until you turn 70.
• 70½. If retired, you MUST begin taking money from your tax-deferred retirement accounts.
• 85. This one was new to me. It's a standard age of payments of "longevity annuities" purchased 20 or even 30 years earlier. Insurance companies sell these for for people who are worried about running out of money in their final years. If you die before the payoff age or 80 or 85, then you and your heirs get nothing. If you live to the payoff age, you get a monthly check for the rest of your life.

Bottom Line

Keep these age dates in mind. They are very important to a successful retirement.

$500 in the bank

MSN Money has a great article titled, Why you need $500 in the bank, which is cited in another story worth reading, 3 money tips for every income.

In the money tip for households earning less than $20,000 (below the poverty line of $22,000 for a family of four), Liz Weston says, "Forget, for now, all the advice about saving three to six months' worth of expenses." Yes, that is a worthy goal, but out of reach for a family below poverty. But this does NOT mean a family in poverty is off the hook from saving anything. Liz sets a target of $500 in the bank for emergencies.

Begin with $100 left in the checking account - always. This cushion will help protect against the costly mistake of bouncing a check. One tip is writing a $100 check to yourself, then don't cash it. Record it in the checkbook but then rip up the check. [Personally this would drive me batty since I balance the checkbook every month to the penny, but it works to "trick" some people into not spending that last $100]

Next: month by month put away a little money, say $20 per month, more if you can, into a savings account to reach $400. This will cover many common emergencies like a car repair bill, doctor bill, and replacing a broken refrigerator.

Lastly don't touch this savings unless there is a real emergency. If you do spend it, you must restore it ASAP.

Bottom Line

What happens if you don't have $500 in the bank? You may be forced to use a credit card and pay high interest rates for an emergency bill over months or years. Or use a payday money lender who will charge an outrageous fee. Or fail to pay your rent and risk eviction. Etc.

Everyone, should have at least $500 set aside for emergencies.

When will House Prices Return to Normal?

“Home is where you can say anything you please, because nobody pays any attention to you anyway”
- Joe Moore

In 2008 a sharp drop in home prices ($9 trillion lost) resulted in a near total collapse of the financial markets. If you're lucky any stocks you owned may have recovered back to 2008 levels. If you're a home owner you may be wondering, when will my house price recover and start going up again?

If the Case-Shiller Index by Yale economist Robert Shiller is correct, the answer is not good. House prices ballooned by 87% starting in 1997 and the pricing decline won't cease until homes return to 1997 values (adjusted for inflation).

Steve Barry at Ritholtz.com/blog created a chart illustrating Shiller's housing price index from 1890 and updated it to Jan 2011 (adjusted for inflation). The index is for home resales, not new sales.

As you can see from the chart, the current "boom" still has some deflating to do.

Bottom Line

I've been thinking that this was a good time to buy and a bad time to sell a house. But if the prediction of the chart above is accurate, then house prices will fall even further and stay flat until the next boom. So do you sell now or wait? Tough call. The chart above is missing a few things that push prices upwards:

"One should also adjust home prices for size — homes square footage shot up tremendously from 1995 to 2007, for Inflation (we had a huge inflationary surge from 2001-07, as the dollar collapsed 41%) and for Quality (high end materials and appliances migrated from the most expensive homes through to the top 30%."

P.S.

If you use this chart, please credit Steve Barry and his website Ritholtz.com/blog

See also http://www.pewsocialtrends.org/2011/04/12/home-sweet-home-still/ for a PEW report on prices and public perception.

When to Call your Credit Card Company

Remember that credit is money
- Benjamin Franklin

MSN Money suggests there are seven occasions when you should always call your credit card company.

1. When a new card arrives - most cards require a phone call to activate a new card
2. Unauthorized charge - if you see something on your credit card statement that does not make sense, call immediately. ALWAYS review your credit card statement line by line. You might have been enrolled in some monthly fee program by visiting a web site or responding to a text message on your phone. Or it could be fraud or identity theft. Years ago a restaurant changed the amount of the tip on my card to a higher value. That is illegal.
3. Lost card - If you're not sure where your card is it's safer to have it canceled and a new card number assigned.
4. Stolen card - call immediately to get the card canceled. File a police report and also notify the credit rating bureaus.
5. Change of Address - don't make the mistake of letting your bank and card statements go to an old address and into someone else's hands.
6. Missing credit card statement - if your monthly statement does not arrive on time, call. Someone can do a lot of damage if they steal your statement which contains card number, name, address, etc.
7. Before a vacation or big purchase - companies monitor cards for unusual activity and may shut it down if they suspect fraud. We have a friend who now lives in Florida but rents out his prior home in New York. While visiting New York to make house repairs, his card company froze his account because of all the "unusual activity" in New York. Before I traveled to Canada this summer I called my credit card companies to warn them about my travel plans. (And to find out their money conversion fees.)

Bottom Line

Credit cards are great to have when used responsibly. Card rates are outrageous so this is not the best way to obtain a "loan" when you're short of cash. Never pay just the minimum suggested - pay more, pay it all if you can.

When a loved one dies...

And when I die, and when I'm gone
There'll be, one child born, in this world
To carry on.
- lyrics from "And When I Die" by Laura Nyro, sung by Blood, Sweat & Tears

When a loved one dies, there's many lose ends that need to be resolved. Most of them are not fun but they are necessary. The Consumerist recommends the following step to Close Up Loved One's Accounts After They Pass Away

1. Immediately request a credit report for the deceased. This will tell you about most accounts and credit cards.

2. Get many "Letters of Testamentary", a court document showing that you are the executor of the estate. [The deceased did leave a will naming an executor, right?]

3. Get a death certificate for every utility and every financial account and then get at least a dozen more. With my mother-in-law, one bank asked for 3 death certs because different departments did not share or they were too lazy to search their files.

4. File a request to close every account as soon as possible.

5. File an obituary with a newspaper that also publishes online. This can help "prove" someone is really dead. Just point them to the URL of the obituary.

6. If the deceased have voice mail through their phone company, politely ask that the message be changed. Some find it disturbing to hear the voice of the recently departed.

7. Debts live on after death. But debts to NOT get inherited by the children. All debt is paid out of the estate. This does not mean the kids can take the money and leave nothing for debts, the debtors will sue and win; debt payment comes first and what remains of the estate (if anything) can then be distributed.

8. If the estate has sizable assets, get a lawyer. Lawyers are also useful if debtors or other companies give you a difficult time closing accounts.

Bottom Line

9. Keep calm. The paperwork will be tedious and sometimes maddening. Keep your humor.

Wall Street Protests

“Wall Street indices predicted nine out of the last five recessions!”
-Paul A. Samuelson

Spengler at http://pajamasmedia.com/ notes that America household's and bankers got rich from the housing bubble and that they have forgotten that bubbles are the exception, not the norm.

Wall Street Protestors Have Met the Enemy and It Is They

That is why the Wall Street protesters are foolish and petulant. American households levered a $6 trillion net inflow of foreign savings during the decade 1998 through 2007 into a bubble that benefited them far more than it did Wall Street. The impact of the bubble on the household balance sheet exceeds the growth in real-estate assets, moreover, because most small business expansion followed the housing bubble.

For fifteen years we rode a tsunami of foreign capital pouring into American markets. We didn’t save a penny. Why should we? Our home equity was our retirement account. Our smartest kids got MBAs and went to Wall Street derivatives desks. Engineering was for dummies. Home prices rose so fast that local governments swam with tax revenues and hired with abandon. Everybody went to the party. Now everybody has a hangover, especially the bankers. We thought we were geniuses because we won the lottery. Now we actually have to produce and export things, and we have to play catch-up. Our kids are competing with Asian kids who go to cram school and practice the violin in the afternoon. This isn’t going to be easy, and the sooner we decide to roll up our sleeves and get back to work instead of looking for bankers to blame, the better our chances of coming back.

Bottom Line

Whom did the housing bubble help the most? According to Spengler, it was households, not banks,

Household real estate wealth remains 70% higher than it was in 1998, even after the crash in home prices. Bank stocks, by contrast, are worth half of what they were in 1998. Many of the big banks are much worse off. Bank of America is trading at less than a third of its 1998 price, and Citigroup is at barely a tenth of its 1998 level.

I recall about 3 years ago that Citigroup stock was hovering around the $1 mark. People forget that Wall Street is really a lottery. There are some big winners but many losers. We see the big winners and give them credit for being smart when really it's mostly luck. What is pathetic is the big bucks paid to investment bankers for playing with other's people money when studies show they rarely, if ever, do better than the market average.

Do you have $1000 in the bank?

“Bad planning on your part does not constitute an emergency on my part”
-Proverb

According to a new survey from the National Foundation for Credit Counseling (NFCC) 64% of Americans don't have enough cash available to them to cover a $1,000 emergency.

"It's alarming," a NFCC spokeswoman tells CNN Money. "For consumers who live paycheck to paycheck — having spent tomorrow's money — an unplanned expense can truly put them in financial distress."

CNN reports,

“Many respondents, 17%, said they would borrow money from friends or family. Another 17% said they would neglect other financial obligations — like a credit card bill or mortgage payment — in order to free up some funds.

Alternatively, 12% of the respondents said they would have to sell or pawn some assets to come up with $1,000 and 9% said they would need to take out a loan. Another 9% said they would get a cash advance from a credit card, according to the NFCC.”

Bottom Line

The recommended safety net was THREE MONTHS of income in a bank account for emergency use. If you take home $40,000 after deductions, then you should have $10,000 in the bank to cover three months of unemployed or a large medical bill, etc.

Today however three months of unemployment may be a best case scenario instead of worst case if you're laid off. People are now unemployed for 6 months to a year or more so you may want to increase your emergency fund. If you don't have an emergency fund - start one immediately with an automatic deposit into a special account of as much as you can afford each month, $100, $500, etc.

25 Documents You Need Before You Die

"Some people are so afraid to die that they never begin to live."
Henry Van Dyke

According to the Wall Street Journal, there are 25 Documents You Need Before You Die.

• An original Will (be sure it is legal and notarized) stored with your attorney or in a courthouse.
• (optional) A revocable living trust can be changed anytime during your lifetime. You can transfer ownership of various assets to the trust and serve as the trustee on behalf of beneficiaries you designate.
• A "letter of instruction" is a supplement to a will that lists the names and contact information of your attorneys, accountants and financial advisers as well as "instructions" to follow upon your death. The letter of instruction is NOT a legal document and is not binding upon your heirs. It expresses your preferences and should be readily accessible, especially if it contains instructions on funeral arrangements.
• A durable financial power-of-attorney form. Without it, no one can make financial decisions on your behalf in the event that you are incapacitated.
• List all safe-deposit boxes owned. Have one or more family members registered so they can open the box without a court order. When my sister and I were registered recently BOTH my parents had to approve the change since both were registered with the bank for the box.
• Include a copy of your marriage license and divorce decrees. Include the distribution sheet listing bank-account numbers that accompanied the divorce settlement to avoid disputes about ownership or payments due. Also include a copy of the most recent child-support payment order. In the majority of states, the obligation to pay child support still exists after death.

Proof of Ownership Documents

• Provide documents for all home and land owned, cemetery plots, cars, boats, stock certificates, savings bonds, brokerage accounts and escrow mortgage accounts. If you fail to tell heirs
  what you own (with proof) the assets could be lost forever.
• List all banking accounts and CDs. Include the online log-in information so family can notify the bank of your death. Abandoned accounts become the property of the state.
• Loans you made to others are assets which should be listed along with a copy of the loan agreement.
• List all debts you own and include the contract. This may include mortgages, car payments, bank loans, stocks on margin, etc.

Health-Care Privacy

• Provide a durable health-care power-of-attorney form so your designee can make health-care decisions on your behalf if you are incapacitated.  Otherwise federal health-information privacy laws will prevent doctors, hospitals and insurance companies from speaking with your designee. You may also need to fill out an Authorization to Release Protected Healthcare Information form.
• Write a living will detailing your medical wishes. Do you wish to be revived if your heart stops?
• Terminally ill patients may wish to have their doctors sign a do-not-resuscitate order.

Life Insurance

• Include a copy of all life-insurance policies. Family members need to know the name of the carrier, the policy number and the agent associated with the policy. Don't forget to include corporate life insurance you earned with retirement.

Bottom Line

These documents are useless if your heirs don't know about them. Or if they are locked inside a safe deposit box that they don't have the key to. Make sure your heirs know these documents exist and where to find them. Store copies outside the home in case you and your documents are lost in a fire, tornado, etc.

Debtor's Prison

I saw a bank that said "24 Hour Banking," but I don't have that much time.
- Steven Wright

Here's a strange story. An IRS refund for $110,000 to an elderly woman in LA was sent to the wrong bank account. The man who received the funds immediately spent about $50,000 to save his home from foreclosure and pay off other bills. When caught he offered to pay back the remaining $65K to the woman with a monthly plan for paying the remainder but she rejected the plan as being too low. He's now in jail, facing a possible 4 years of prison time, for the felony of grand theft by misappropriation of lost property.

There are many red flags in this story:
1. A $100K refund? Why is someone with this kind of money doing her own taxes?

It is reported that she filed an old Citibank account number with the IRS for the refund. The account was closed in 2004 and the number later reassigned to a man in the story.

2. Why did Citibank reuse an old account number? That is terrible policy. How long did it wait before reassigning the number?

3. The woman rejected the deal to repay. Why in the world are the parties negotiating at all? Years ago my first automatic deposit paycheck in my new bank account was saved to the wrong account. The bank did not say, sorry, someone else spent your money. You better work out a deal with them. No the bank corrected their error. Likewise I would expect the IRS to pay the women her refund immediately and for the IRS to work with the man on recovering the misplaced funds. I suppose in this instance the IRS holds the woman responsible. They sent the money where she told them to send it.

4. Four years in jail? That seems harsh. I know the law says you can not spend the money in a bank error but come on. Work out a repayment plan with interest. Send him to jail if he violates the plan. With jail the government loses twice - it does not get the money back (unless that is part of the sentence) and it's spending money to keep him in jail.

5. The bail is set at $110,000, the exact amount of money misplaced.  Does the judge have a mean sense of humor?

Bottom Line

Just because money appears in your bank account, it is not yours to spend. If you can not explain the deposit (e.g. paycheck, etc.) then ask the bank where it came from before spending it.

Breaking up with your Credit Card

'The question is,' said Humpty Dumpty, 'which is to be master — that's all.'
- Lewis Carroll (Alice Through the Looking Glass)

We received a piece of junk mail at home from a company that said, "We miss you <sniff>", as if they were crying. I thought this was in rather poor taste but apparently it is not uncommon. The Consumerist tells of a credit card company writing like a spurned lover - "They promised that they'd change if we took them back. Things would be different this time." So Jon Acuff wrote back a reply in the same tone:

Dear (NAME OF CARD),

Wow, I don't really know where to begin. We've had some good times, haven't we? Remember that vacation I took you on? We had so much fun in (LOCATION). It wouldn't have been the same if you hadn't been there and had my back. And who can forget the time you helped me pay my (NAME OF BILL). That was a lifesaver!

But a few months later, I felt confused and hurt when you asked me for all that money back, plus 20% interest. I thought we had something special. I thought what we had was true. But now that I look back on it, for you, our entire relationship was about money. And it feels really one-sided. I give and I give and I give, and you just take, take, take. Sure, you give me small gifts here and there that you call "rewards," but even those I have to "earn."

I can't live this way. I feel like I don't even know you anymore. I want you out of my house, out of my life, and most importantly, out of my wallet.

I've found somebody else. Somebody I can trust. Somebody without hidden motives or hidden fees. He's simple but honest. Hardworking and true. I found someone who really cares about me and isn't into playing games.

I'm dating cash.

Don't call me anymore. I don't want you or your empty promises of frequent flyer miles. It's over.

Don't walk away mad. Just walk away, credit card... just walk away.

(YOUR NAME)

Bottom Line

Credit Cards are not your friend. Use them at your own risk and never mistake them for a cheap loan.

Unclaimed Property

“Well, you know, I was a human being before I became a businessman.”
- George Soros

The Consumerist recommends Unclaimed.org, a free non-profit site that's a convenient portal for searching for unclaimed property state by state. You pick a state and unclaimed.org opens the official state website for unclaimed property searches.

Here's some info from Unclaimed.org's Q&A page:

What is unclaimed property?"Unclaimed property (sometimes referred to as abandoned) refers to accounts in financial institutions and companies that have had no activity generated or contact with the owner for one year or a longer period. Common forms of unclaimed property include savings or checking accounts, stocks, uncashed dividends or payroll checks, refunds, traveler's checks, trust distributions, unredeemed money orders or gift certificates (in some states), insurance payments or refunds and life insurance policies, annuities, certificates of deposit, customer overpayments, utility security deposits, mineral royalty payments, and contents of safe deposit boxes."

What happens to accounts that have no activity?"Companies are required by law to send funds from lost accounts to the state of the owner's last known address. "
"Most states hold lost funds until you are found, returning them to you at no cost or for a nominal handling fee upon filing a claim form and verification of your identity. Since it is impossible to store and maintain all of the contents that are turned over from safe deposit boxes, most states hold periodic auctions and hold the funds obtained from the sale of the items for the owner. Some states also sell stocks and bonds and return the proceeds to the owner in the same manner."

There are "Finder" companines that will charge you to search or notify you of money found in exchange for a finder's fee. But they don't have any more information than is available free to the public, so why pay them when you can find it yourself?

Bottom Line

How do I keep my property from becoming lost in the future?"Property becomes lost due to a company having no communication with the owner. You should contact institutions that hold your money or property every year and especially when there is an address change or change in marital status. For security reasons, most financial institutions do not forward mail. Keep accurate financial records and record all insurance policies, bank account numbers with bank names and addresses, types of accounts, stock certificates, and rent and utility deposits."

• Cash all checks for dividends, wages, and insurance settlements without delay.
• Respond to requests for confirmation of account balances and stockholder proxies.
• If you have a safe deposit box, record its number, bank name and address, and give the extra key to a trusted person.
• Finally, prepare and file a will detailing the disposition of your assets.

Confusing Credit Terminology

The creditor hath a better memory than the debtor.
James Howell

John Ulzheimer, President of Consumer Education at SmartCredit.com, explains seven pairs of confusing credit terms at http://www.mint.com/blog/how-to/confusing-credit-terms-02212011/

I'll paraphrase and elaborate and try not to make any mistakes.

Credit Report vs Credit Score

A credit score is a financial "grade" based upon an interpretation of your current credit report by a credit agency. (See FICO score below)

Credit Report vs Credit File

A credit file is all the information about you that is floating around a credit bureau’s database waiting to be compiled into an official credit report. No one outside a credit bureau should see your credit file while your credit report can be purchased by banks, auto dealers, etc.

Credit Reporting Agency vs Consumer Reporting Agency
“Consumer reporting agency” is a legal term describing any organization that regularly compiles information about consumers for the purposes of selling it to a 3rd party. 

A credit reporting agency is just one example of a consumer reporting agency. A non-credit example is LexisNexis; they collect personal data and create consumer reports for employment screening, resident screening, insurance underwriting, and volunteer background checks.

Credit Score vs FICO Score

FICO is an acronym for the Fair Isaac Corporation, the creators of the very popular FICO credit score. There are other credit scores like NextGen and VantageScore but hardly anyone uses them. It is important to know which type of score you have because the ranges are different: A FICO score is between 300 and 850. A VantageScore score ranges from 501-990.

Home Equity Loan vs Home Equity Line

A home equity loan is a loan with a fixed payment for a fixed number of months. (Ignoring for simplicity variable rate loans.)

A home equity line is a revolving line of credit, just like a credit card. You can borrow against it, pay it back, and borrow again.

In both cases the loan/line is secured by your home, which means if you default on your payments you could lose your house.

Credit Card vs Charge Card

A credit card is a revolving account, which means you have a variable payment depending on your outstanding balance for the month. 

A charge card (like American Express) requires payment in full each and every month. There is no minimum payment and no rolling the rest over with interest to be paid in the future.

Chapter 7 vs Chapter 13

Both are types of consumer bankruptcies.  Under Chapter 7, “liquidation”, any "statutorily dischargeable debt" is eliminated. 

Under Chapter 13 the debt is "adjusted." The consumer pays to a trustee who then distributes the money to the consumer’s creditors.

Bottom Line

When my wife got a home mortgage she had a great lawyer. He made her read the entire contract with the bank. She said, but that's your job.

He replied, no. It's your money and your home. You must understand what you are signing. His job was to make sure the contract was fair and to help her to understand the language of the contract she would have to live with for the next 20 or 30 years.

Always read and understand any financial document you sign.

Debt Collectors

“Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.” -Ogden Nash
Some debt collectors will do anything to collect from you including harassing your family, friends, coworkers, etc. But you have rights.

The Consumerist features several useful posts.

Let's begin with a sample letter that one should send immediately after first being contacted by a debt collector: http://consumerist.com/2007/07/sample-letter-for-disputing-a-debt-collection-notice.html

The letter asks for four things:

* (1) the amount of the debt;
* (2) the name of the creditor to whom the debt is owed;
* (3) Provide a verification or copy of any judgment (if applicable);
* (4) Proof that you are licensed to collect debts in (your state)

The letter goes on to mention...

* because I have disputed this debt in writing within 30 days of receipt of your dunning notice, you must obtain verification of the debt or a copy of the judgment against me and mail these items to me at your expense;
* you cannot add interest or fees except those allowed by the original contract or state law.
* you do not have to respond to this dispute but if you do, any attempt to collect this debt without validating it, violates the FDCPA;
...
Should you pursue a judgment without validating this debt, I will inform the judge and request the case be dismissed based on your failure to comply with the FDCPA.

What is debt validation? The collection agency needs to prove that they own the debt. They can claim that the debt was sold to them but you have the right to ask them to prove it. Often the proof is flimsy or wrong. There are many stories now of mortgage factories signing fraudulent papers assigning mortgage debt for illegal foreclosings.  The Consumerist recently featured a story of a of a collection agency forging the signature of a dead woman thousands of times to establish validation of ownership.
http://consumerist.com/2011/01/dead-woman-tried-to-collect-on-thousands-of-debts.html

Another debt right to be aware of is the Statute of Limitations. A company can not appear out of the blue and say you failed to pay a debt from 20 years ago.  Well actually they can (and will) say it, but will very likely lose in court if you challenge them. Each state has its own limit on when debts expire. See http://www.creditinfocenter.com/rebuild/statuteLimitations.shtml for details.

Bottom Line

Search the Internet to know your rights. Read the Fair Debt Collection Practices Act at http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre27.pdf

But if legal language makes your head spin, the FDCPA is explained here,
http://en.wikipedia.org/wiki/Fair_Debt_Collection_Practices_Act
and here
http://www.expertlaw.com/library/consumer/fair_debt_collection.html
and here
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre18.shtm

ATM Scams

"Consider this: I can go to Antarctica and get cash from an ATM without a glitch, but should I fall ill during my travels, a hospital there could not access my medical records or know what medications I am on." - Nathan Deal

Hopefully you're aware of ATM skimmers. I'll discuss them below but thought I would start with a low tech way to lose money at an ATM. San Francisco police caught a crook who stuffed napkins into ATM cash dispenser slots. When people tried to withdraw cash, it would get stuck behind the napkins. After they walked away frustrated, the crook dislodged the napkins, and walked away with their cash.

If your ATM money does not come out reach up into the slot and see if there's anything stuck there. If that fails, take a cellphone picture of the ATM screen for evidence and then call the number on the ATM for service or go inside the bank for help.

Now back to skimmers. These are devices designed to steal your card information and pin. Check out the photos at http://www.snopes.com/fraud/atm/atmcamera.asp and http://consumerist.com/2009/04/heres-what-a-card-skimmer-looks-like-on-an-atm.html

There are two things to worry about.

1. A camera that records the PIN you type in. At the snopes link above the camera is hidden inside a pamphlet holder next to the ATM (pictured above). At the consumerist site the camera is in a strip attached to the ceiling.

2. A card scanner attached to the ATM. At both sites the extra scanner is part of a panel affixed to the ATM and look absolutely authentic!  At this site, http://gizmodo.com/5453857/atm-card-skimmers-are-getting-frighteningly-sophisticated, the skimmer is quite thin and covers the card reader.

Bottom Line

What can you do to protect yourself. Not much I'm afraid. Try to cover your fingers as you type the PIN from prying eyes or camera. Use the same ATM and remember what it looks like. If anything changes on the outside of the machine, ask the bank before using the machine.

Any card scanner could be stealing information - at restaurants, gas pumps, grocery stores, etc. If money is stolen report it to the bank and file a police report.