Money Under 30

Put Your Financial Past Behind You

David Weliver — Thu, 02 Jul 2009 14:17:29 +0000

Professional poker players often quip: “Don’t throw good money after bad”. At the poker table, you have to know when to stop betting a hand and admit that an opponent has you beat. The same holds true in your financial life. Whatever financial mistakes you made in the past are over. What matters is how you play going forward.

Some people grow up saving and rarely, if ever, make financial blunders. Many of us, however, learn the hard way. We make financial mistakes like:

Racking up credit card debt
Buying too much car or house
Defaulting on a loan
Failing to save an emergency fund or for retirement

If you have ever done one of these things, you know some of the consequences:

High monthly debt payments
Repossession or foreclosure
A tarnished credit score
Feeling behind your peers in savings

Learn and Move On

Yes, you’ll have to face the consequences of financial mistakes. But that doesn’t these mistakes should ruin your life. If you’re up all night worrying about a debt you incurred or a less-than-stellar credit score, ask yourself: “What’s all this worrying doing for me?” Instead of worrying, find a way to make financial decisions today to make sure that you aren’t making your financial situation worse.

Today’s Decisions Equal Tomorrow’s Stability

The reason building financial stability is not easy is the same reason it’s not easy to lose weight or quit a bad habit—all require making difficult decisions today for which we won’t see benefits for months, years, or even decades. That’s why—if you have made financial mistakes in the past—you continue to feel the pain from those decisions today. The good news, of course, is that you can reverse the trend.

If you’re struggling with credit card debt, it’s important to pay down your debts, but even more important to make a budget, live within your means, and not accumulate new debt. If you’ve tarnished your credit score, you can’t make the old late payments or defaults go away, but you can avoid new ones by paying all your bills on time.

If you overbought a car or a home, you can find a way to sell it and purchase a more affordable option. If you haven’t saved as much as you should have, you can start saving today!

ChexSystems: The ‘Credit Bureau’ of Checking Accounts

David Weliver — Wed, 24 Jun 2009 21:49:36 +0000

I can’t imagine life without a checking account. But millions of Americans don’t use direct deposit, write checks, or use a debit card. Some because they’d prefer not to. And some because they can’t. For those that can’t have a checking account, chances are they bounced one too many checks and are flagged in ChexSystems—the “credit bureau” for checking accounts. What is ChexSystems? And why does it matter?

ChexSystems is a national database of bank customers that chronically overdraw their checking accounts (either via bounced checks or other overdrafts).

Like a credit bureau, ChexSystems uses your social security number to track:

How you manage your checking accounts
How frequently you overdraw your accounts
Whether you owe money to any banks for overdrafts/bad checks

Whenever you open a checking account with a new bank, most banks check with the agency to make sure you haven’t abused accounts in the past. (Some non ChexSystems banks exist; see a list at the end of this post).

If, like most Americans, you rarely overdraw your account and always pay any overdrafts quickly, you’ll never have to worry about ChexSystems. If not, watch out: You may be in the system and you may not be able to open a new checking account.

This happened to a friend of mine. When he was younger and less wise, he overdrew not one but two checking accounts and failed to repay the banks several hundred dollars a piece. Soon, his banks closed his accounts and he couldn’t open a new one.

Had he repaid his overdrafts quickly, his banks probably would’ve let him keep his accounts open. Now, getting a new checking account won’t be easy; he must make due with cash and a savings account. (ChexSystems doesn’t typically impact your ability to open savings accounts).

What to Do If You’re In ChexSystems

Just because you have a negative report in ChexSystems doesn’t mean you’ll never be able to get a checking account again. There are steps you can take:

First, order your individual ChexSystems report. You are permitted one free report per year or anytime you are denied a bank account.
Next, dispute any inaccurate information on the report.
Finally, repay any outstanding checks!

Information can stay on your ChexSystems report for between four and five years, but banks will be more willing to consider you for a checking account if you have fully repaid any outstanding checks. (Getting a checking account will likely be impossible if you still owe).

Finally, talk to a real person. You may have luck opening a bank account if you apply to a local bank or credit union where you can speak to a sympathetic teller or manager and demonstrate that your past financial transgressions are behind you.

Finally, you may be able to find non ChexSystems banks. These banks that do not use ChexSystems are few and far between, but some sites maintain lists (like those here and here). Again, it’s your obligation to repay your old debts and it’s the smartest financial move for a lot of reasons, but the alternatives to a checking account (such as check cashing/bill-paying companies and prepaid debit cards) are expensive and inconvenient.

Have you had a checking account closed or had difficulty opening a checking account because of a report on ChexSystems? What happened?

We All Have Spending Weaknesses

David Weliver — Tue, 23 Jun 2009 11:30:59 +0000

The guy with the $50,000 luxury car. The couple with the $3,000 a month loft apartment. The girl who spends $200 a week on locally-grown food. The guy who spends $200 a month on gym memberships and fitness classes. The guy with four motorcycles. Do you know them? These are extreme examples, but most of us have one or two spending weaknesses. Even if we’re otherwise smart with our money—even if we know better—we splurge in a few areas. As long as you limit your splurges and as long as you are sure of the value of those splurges to you personally, your spending weakness is probably a good thing.

Some people can live life in a state of permanent self-denial in pursuit of their long-term goals, be it an early retirement or simply a huge bank account. Others would ask: What’s the point if we can’t enjoy ourselves today? Although we all should learn and practice restraint and frugality so we can live within our means, we do need to enjoy ourselves today. Of course I’m not saying go into debt and buy whatever you crave. There’s a line between the spending patterns that keep you forever ensnared in debt and those that allow you to reward yourself periodically while continuing to build long-term financial stability.

And I know: I used to be in the “it’s just money, live now!” camp. I ate out whenever I pleased. I bought whatever I wanted. I even pursued my private pilot’s license simply for the fun of it…before I even had a full-time job. Talk about an irresponsible indulgence. Obviously, those decisions caught up with me, and about five years ago led to my financial enlightenment. I tightened the belt and started learning (and writing) about making smarter money decisions. Although I consistently live within my means today, I have my spending weaknesses. The two that come to mind are: the occasional dinner out and a BlackBerry that, although I use it for work, I admit is primarily for my own entertainment.

My fiancee’s include fitness classes and organic foods. Although I would say she spends too much in those areas, she’s living below her mans and she’s quite frugal in every other area. (She does not, for example, share my interest in the latest and greatest cell phones. She recently purchased a new phone only after her old one cracked and wouldn’t hold a charge for more than a few hours).

I’m acutely aware that all of the budget bulldogs out there would find faults with both of our budgets. Stop paying that ridiculous cell phone bill! Cancel your gym memberships! Stop shopping at Whole Foods and cut your grocery bill in half! It’s true, those things together could save us about $200 a month. But those are our spending weaknesses. Our indulgences. They’re what make working and saving and scrimping on other things worthwhile. Could we do without them? Sure. Would we get rid of them if times got really tight? Of course. But for now, we pay for them—fully acknowledging that they are luxuries—as we continue to work hard to build our future.

Do you have spending weaknesses? What are your indulgences—your splurges? Are they in check, or out of control? Do you justify them, or feel guilty about them? Please share in a comment!

Quicken Online’s Best Feature: Trends

David Weliver — Mon, 22 Jun 2009 14:58:12 +0000

I logged into my free Quicken Online account yesterday for the first time in a while. Now that Quicken has about 90 days of data from all of my financial accounts, I started to play around with the trends feature. And I loved it. The “trends” tab on Quicken Online is arguably the free budgeting tool’s best feature, and provides a way to look at your spending that would be incredibly difficult–if not impossible–to create on your own.

The trends feature aggregates all of your income and spending from your linked accounts (checking, savings, credit cards, etc.). Quicken Online trends looks at all of your spending and income over a period of time. Tthe default is three months, although you can select year-to-date, this month, etc. You’ll see, at a glance, how much you have spent and how much you have earned and Quicken shows you how much either above or below your means you are living. It also breaks your spending down by category.

Personally, I’ve always known how much I’ve spent on my car between the payment (financed it before I knew any better, but it’s almost paid off), insurance, tolls, parking, gas, and maintenance. But Quicken Online showed me that over time, that damned car is my biggest expense. Yup, transportation costs me more than my housing expenses (although those are very low).

I considered these transportation expenses a fact of life when I had a long commute and used my car to visit my fiancee a hundred miles away every week. But now we live together and I can walk to work. So that expense needs to go! Once I pay it off later this year I’ll consider selling it or working to dramatically reducing how much those damned wheels cost each month.

Quicken Trends also pointed out months in which I was really good at stashing away money and months in which I spent more than I should have. (A trip to Puerto Rico for a friends’ wedding and some expenses towards my own wedding this August contributed). Unlike a budgeting tool that only looks at a month at a time, however, Quicken trends lets me look at a greater time period, so if you spend more than you should one month, you can make sure other months’ spending is balancing that out.

That’s important, because although we look at our budgets one month at a time, it’s not really realistic. Big expenses pop up that can really throw a wrench in your monthly spending plan.

About Quicken Online

Quicken Online is a free, online, “lite” version of the popular Quicken personal finance software. You can set Quicken Online up in a just a few minutes and link all of your financial institutions. Quicken then grabs your transactions and organizes them. In addition to the trends tool, Quicken Online lets you set monthly spending goals and lets you see upcoming bills to give you a better idea of how much money you actually have in your accounts before your next paycheck. You can access the program 24/7 online or via their iPhone app.

Learn more about Quicken Online or set up a free Quicken online account now.

Does Debt Settlement Work?

David Weliver — Wed, 17 Jun 2009 14:44:48 +0000

For better or worse, debt settlement is all the rage these days. The New York Times wrote yesterday about a debt-ridden freelance writer who settled a $5,000 credit card debt for half of the original balance. The Today Show discussed debt settlement on its program this morning. What is debt settlement? Does it work? And what are the consequences of settling a debt for less than you owe?

What is Debt Settlement?

Debt settlement is the process of negotiating with creditors (usually credit cards) to pay less than you owe to discharge the debt. For example, if you owe $8,000 on a credit card and have fallen months behind in payments, the credit card company may allow you to pay 75% or even 50% of the balance and call it even (i.e., forgive the remaining debt). To qualify for a debt settlement arrangement, the creditor may require you to have the settlement amount in a lump sum or pay it over a short period of time (usually less than a year). Although credit card companies almost never settled debts in the past unless a debtor was declaring bankruptcy, times have changed. With so many people behind on their bills these days, credit card companies are finding that getting something is better than nothing.

Warning! Debt settlement is something that some people can do for themselves by being persistent and working with creditors directly. There are hundreds of companies that advertise debt settlement services and promising to cut your debt in half, etc. These companies charge hefty upfront fees (often 10-15% of what you owe) and cannot guarantee results, no matter what they say. Stay away. If debt settlement could work for you, you can do it yourself!

The Consequences of Debt Settlement

First of all, settling a debt will ruin your credit. Although banks probably won’t agree to consider debt settlement unless you are already significantly behind on your payments (at least two months), a settled debt may appear on your credit report as a charge-off, which is far worse for your credit than a few months of late payments. (In general, you can reverse the damage done to your credit by a few late payments with two or three years of timely payments; a charge off will continue to haunt you for up to seven years). Although not as bad as bankruptcy, settling a debt will impair your credit for a long, long time.

Second, creditors must report canceled debts to the IRS using form 1099. So if a credit card forgives $2,000 of your debt, you may owe taxes on that $2,000 just as if somebody wrote you a check for the amount…unless you can prove that you are insolvent. There is an “insolvency” rule in IRS Publication 908 that governs taxes and bankruptcy. Even if you’re not filing bankruptcy, if you owe more money than you have (i.e., have a negative net worth), you may qualify as insolvent and may not have to pay taxes on forgiven debts. That said, if you settle a debt you should definitely seek professional help with your taxes that year.

The Bottom Line: Is Debt Settlement Worth It?

If you’re drowning in debt, debt settlement may be able to get you out from under your debt for less than you currently owe. If you have some money stashed away and have already ruined your credit (or aren’t worried about ruining your credit), then it’s a viable option. To get started, call your creditors (or wait for them to call you; if you’re late, they will). Ask them vaguely if there is any way they might be able to reduce the amount you owe if you can come up with a full payment quickly. Yesterday’s times article indicated that at some credit card companies, it doesn’t even require a supervisor to get the debt settlement ball rolling. Reps at other banks may not be able to help, so you’ll have to ask for a supervisor. Be persistent, and negotiate. If they offer to settle your debt for 80%, tell them you’d consider 50% and go from there.