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As a disclaimer, this is actually a re-post of an article I wrote some years ago and had on a different blog. The focus of that blog isn’t financial, but I had that blog way before I purchased this one. Because the topic fits better here, I’ve moved it here and updated it a little bit but otherwise the information is still the same as it was when originally written.

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Many people have had at least one credit card or something go to a collection agency. Sometimes it’s legitimate, sometimes it’s not. We’re going to talk about the legitimate ones, where you know you either fell behind in payments or stopped making payments, and now a collection agancy has tracked you down and is trying to get you to pay it off.

Here’s the deal. Credit card companies, or whomever else, will do what they call a “charge off” of the outstanding amount you owe on a claim. When you fall behind on your payments, they attach all these fees to the original balance, usually around 15 to 50% a year, but when it finally gets reported to the credit reporting companies, the amount they’re allowed to charge off is the actual amount you owe, not all those fees. So, if you owed them $2,000, even if they tacked on $1,000 worth of fees, they can’t report all that and won’t get paid for it either.

Why is it important? Because they have these collection agencies known as “scavengers”, that buy all this debt at between 5 and 8 cents on the dollar, look at what the amounts were with all the interest, then start pounding your phone trying to get you to start paying on all of that.

If you’re ever contacted by a collection agency about an outstanding amount, you need to take a couple of steps before you agree to anything.

The first step is to provide proof that you owe an outstanding balance to begin with. Even if you know you owe something, by law collection agencies can’t proceed until they give you proof via regular mail showing you all the information that was provided to them by the creditor.

The second step is to immediately get a credit report of your own. Every person in the United States is allowed one free credit report a year from, which is part of the federal government’s plan to help all consumers be able to check on their financial status.

The reason you want to do it is if you make even one payment, or set up an agreement on the amount that the collection agency tries to get from you, by law you now are responsible for all of it. By getting your credit report and the information from the collection agency, you’ll see how much your original creditor charged off legally and, by rights, you can start your negotiations from that amount instead, minus all those fees.

You could end up paying thousands less based on having this information, but it also gives you a major negotiating point. Sometimes if you can pay the entire amount quickly you can get them to reverse the negative note on your credit report, which is important because otherwise it can stay on there for up to 7 years and give you grief if you try to get a loan of any kind.

They don’t want you to know this, obviously, but I’m telling you how it is. If you want more information on it, read the Fair Debt and Credit Collections Act; it’s there for your protection. Make sure to always know your charge off amounts; you could save a lot of money and grief on the back end.

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The Financial Times have released an online video featuring their US managing editor Gillian Tett, which goes into detail on 3 numbers which they believe summarize the current state of the US economy.

The numbers are –

40% – the number of imports which are actually made in the USA. During a cars manufacturing process, parts can cross the US/Mexico border around 8 times, but 40% of the time the part itself originates from home soil.

53 million is the number of US citizens who currently work for themselves as freelancers, a figure which is only set to rise.

$12 trillion – this is 152x more money than Bill Gates is worth, yet it is the amount which Americans are due to inherit from relatives over the next decade. It is going to shape how people use their money, and will affect the entire economy.

Check out the video, they are certainly not the sort of numbers we were expecting. Which 3 numbers would you say sum up the US economy? Let us know in the comments.

The FT are currently offering a 4 week trial for just $1 which you can grab now on their website.

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Too many people are struggling with debt that should be easy to control. Credit cards make buying things easy, and low payments make us feel like we’ve got full control.

Credit Crunch
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Unfortunately, life isn’t always quite that simple. It turns out that minimum payments on credit cards could be the difference between getting out of debt in less than 3 years or having it linger as long as 9 years… and that’s if you never purchase another thing. It’s something most people don’t even think about; that’s why this post is here to alert you.

If you’re in the mindset where you’re looking for solutions because you’ve finally realized you have some issue with credit card debt, this post is here to help. The first tip, is to read a review I wrote of a book called The Skinny On Credit Cards. Go there and read my review, then buy the book. Trust me on this one; it’s the easiest way to understand how credit cards work.

Number two, immediately stop using your credit cards until you can figure out your debt. You figure out your debt by looking at all of your balances, looking at your interest rate, then seeing how much you owe monthly. I’m going to give you an easy way to make an estimate but if you want something a bit more in depth check out this post.

If your balance is $500 or less, look at how much your monthly payment is. Take $5 off that amount, then multiply that figure by 12. Subtract that total from your balance. Then take another $5 off your previous payment amount and multiply that by 12, and subtract that amount from your balance. If you’re at a negative balance, but barely, it means it’ll take you between 18 and 24 months to pay off your balance if you don’t use your card again and only pay the minimum balance.

If your balance is between $501 and $1,500, do the same thing, only in $10 increments every 12 months until you’re down to between $15 and $20. Yes, that’s right; it’s going to take you 5 years or so to pay off that balance if you never use that card again.

If it’s higher than $1,500,… well, just realize it’s going to take you more than 5 years and run with that for now.

Number three, call each of your credit card companies to see if you can get a reduction on the interest rate. If you can, great. If not, you at least now get to request a free credit report from all 3 agencies, because they have to give you an official reason why you didn’t qualify. That’s important because, even though you’re allowed a free one once a year, it’s nice being able to get another one for free and space out what you’re seeing as it involves the reporting of your outstanding debt, as well as a host of other things.

Number four, start paying off your cards, but get rid of one as fast as you can. There are different rules of thought here, but I’ll tell you mine.

If you can get one card paid off, you’ll feel a sense of accomplishment and see the plan works. Concentrate on the card you can actually pay off the quickest, and pay more than what’s due only on that card. Doesn’t matter how much it is, just pay more than the minimum.

When that card is paid, take that payment and add it to the next card, and so on. If you have only three cards, pay in the order you can get rid of them. If you have more, start with the lowest two, then go after the one with the highest interest rate, not the highest balance. You actually will bring your debt down quicker because that high interest rate is kicking your behind, but now you have extra funds to throw at it, so it’ll come down quickly.

And there you are; it’s not a lot, but these are some valid solutions on how to bring down your credit card debt. It’s not hard but it takes diligence to get it done. Good luck.

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