Tag Archives: Money

Take Pictures of Your Credit Card Before You Travel

There’s no shortage of things that can go wrong when you’re traveling: You might lose your debit or credit card; your purse could get swiped; your phone could fall down a grate in front of your hostel (yes, this happened to me).

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Watch Out for These Extra Airport Taxes and Fees

In the world of travel blogging, there are a few hacks sworn by if you want the cheapest flights. Take advantage of one-way tickets, for example, and avoid pricey airports, like Heathrow in London.

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How to Survive a Long Flight With Kids

How do you take a long-distance flight with three kids without losing your sanity (or your savings account)? That’s what we’re looking at this week.

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Cancel a Flight for Free With the 24-Hour Rule

If you’re looking for a flight (say, for your next long-distance trip), you’ll want to know the ins-and-outs of the airline’s cancellation policy should you need to change or cancel after you’ve purchased your ticket.

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Should You Buy a Car With a High Interest Rate or Lease Instead?

Should you settle for a high interest rate on an auto loan, or are there better financing options? That’s what we’re looking at this week.

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What Really Happens When You File for Bankruptcy

What Really Happens When You File for Bankruptcy

Bankruptcy is a last resort for people and businesses, including Gawker Media, the company that owns this site. Many companies, like United Airlines and General Motors, file for bankruptcy and continue business as usual. Individuals file for bankruptcy and often emerge in one piece, too. There’s a lot of confusion and misconception about bankruptcy, so let’s talk about how it affects your finances.

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The Differences Between Chapter 7, 13, and 11

In general, people file for bankruptcy when there’s no way in hell they can meet their debt obligations. Popular assumption is that those people are bad with money and take out too much credit card debt. Sure, that happens, but often, people and companies file bankruptcy after a major financial blow. It might be a lawsuit debacle. It might be digital obsolescence. It might be an unexpected illness.

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A lot of people think bankruptcy wipes out any and all debt obligations, but that’s not the case. You still have to pay up, and how you’ll pay up depends on what kind of bankruptcy you file: Chapter 7, Chapter 13, or Chapter 11. There are other types of specific bankruptcies, too (Chapter 12 is for farmers and fishermen, for example), but these three are the most common.

With Chapter 7, you may have to liquidate certain assets (like a car or a second home) to pay off at least some of the debt. Most of your assets are probably exempt, but it depends on your state, your financial situation, and whether or not that asset is essential. You have to meet certain eligibility requirements to file, and income is perhaps the most important one. As legal site Nolo explains, there’s a whole set of criteria to determine your income eligibility, but generally, you have to have little to no disposable income.

With Chapter 13, you get a plan to pay off your debts within the next three to five years, but you get to keep your assets. After it’s all said and done, some of those debts will likely be discharged. You have to qualify, though, and that means your secured debts can’t be more than $1,149,525 and your unsecured debts cannot be more than $383,175. Secured debt is debt that’s backed by collateral, like your house or car.

Chapter 11 bankruptcy works kind of like Chapter 13, but it’s reserved for businesses, and basically means a reorganization or restructuring for the company. Businesses can file for Chapter 7 bankruptcy, too, but again, that means a liquidation of assets, so Chapter 11 is usually a more attractive option. Companies get to keep their stuff and keep their creditors at bay while they continue their operations, but they have to come up with a plan to pay off at least some of their debt, or get it forgiven.

What Happens When You File

When you file for bankruptcy, you get an “automatic stay.” Basically, this puts a block on your debt to keep creditors from collecting. While the stay is in place, they can’t garnish your wages, deduct money from your bank account, or go after any secured assets.

Ironically, bankruptcy isn’t free. The filing fee alone is a few hundred bucks for Chapter 7 and 13, and nearly $2,000 for Chapter 11. And then there are the attorney fees. You can file without a lawyer, but it’s not recommended since bankruptcy laws can be tough to navigate. Upright Law estimates the fees for Chapter 7 are $1,000-$2,000, and Chapter 13 are $2,200-5,000. Chapter 11 costs a lot more. Over at Forbes, attorney Robert Bovarnick explains:

In my experience, attorney’s fees run about 4% of annual revenue. If your company has $2,000,000 in revenue, expect to pay between $75,000 and $100,000 to your bankruptcy lawyer–and there may be expenses for accountants and other professionals on top of that.

You’ll also have to take a class or two. The government requires individuals to take credit counseling 180 days before you file, and you also have to take a debtor education course if you want your debts discharged.

A couple of weeks after filing, you’ll have to attend a “creditors meeting,” which is basically what it sounds like: a court meeting between you, your bankruptcy trustee, and any creditors who want to attend. They’ll all ask you questions about your financial situation and decision to file bankruptcy.

Your Assets Get Liquidated With Chapter 7

Nolo says that in most cases, Chapter 7 debtors don’t have to liquidate their property (unless it’s collateral) because it’s usually exempt or it’s just not worth it. They explain:

If the property isn’t worth very much or would be cumbersome for the trustee to sell, the trustee may “abandon” the property — which means that you get to keep it, even though it is nonexempt…Most property owned by Chapter 7 debtors is either exempt or is essentially worthless for purposes of raising money for the creditors. As a result, few debtors end up having to surrender any property, unless it is collateral for a secured debt…

After the creditors meeting, your trustee will figure out whether or not to liquidate your stuff. If it does get liquidated, that means you’ll have to either surrender it or fork over its equivalent cash value to pay back your debt.

You Get a Payment Plan With Chapter 13

With Chapter 13, you get a plan to pay off your debts, and some of them have to be paid in full. These debts are “priority debts,” and they include alimony, child support, tax obligations, and wages you owe to employees.

Your plan is based on how much you owe and what your income looks like, and it will include how much you have to pay and when you have to pay it.

The “Best Interests Test” for Chapter 11

After filing for Chapter 11, the company has to come up with a reorganization plan for their business and finances. While they can continue operating as normal, they do have to run major financial decisions, like breaking a lease or shutting down operations, by the bankruptcy court. Creditors and shareholders can offer their input on these decisions, too. This plan is basically an agreement between the debtor and creditors about how the company will pay its future debts.

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The plan also has to pass a “best interests” test. This test ensures creditors will get as much money under the Chapter 11 as they would if the debtor filed for a Chapter 7 liquidation.

Filing usually takes a couple of months to wrap up, but it takes considerably longer for the actual bankruptcy to come to a close. According to Credit.com, Chapter 7 bankruptcy is generally pretty quick and closes in a few months. This makes sense, since Chapter 7 liquidates your stuff to pay off debts quickly. Chapter 13, on the other hand, can last up to five years. According to Nolo, some Chapter 11 cases can wrap up in a few months, but six months to two years is a more common time frame.

What Happens to Your Credit

Your credit score will plummet with a bankruptcy. The higher your score, the more you’ll fall. FICO estimates someone with a score in the mid 700s might see a drop by over 100 points. Of course, a low score can make your life difficult in many ways.

In general, Chapter 7 and 11 bankruptcies remain on your credit report for ten years, and Chapter 13 stays on for seven.

After bankruptcy is all said and done, most debts are discharged, but not all of them. Student loans aren’t typically dischargeable in bankruptcy, for example. Here are a few other non-dischargeable debts, according to Sutton Law:

  • Tax debts
  • Alimony and child support
  • Divorce-related debts, including property settlement debts.
  • Debts for some fines or penalties.
  • Debts for personal injury or death caused by drunk driving

In some cases, student loans are dischargeable after a bankruptcy, but you have to pass a federal test for hardship, and the Department of Education says it’s rare.

https://studentaid.ed.gov/sa/repay-loans…

Bankruptcy is usually a desperate remedy to a helpless situation. Knowing how it works and what to expect can help you navigate some of the misconceptions and figure out what the process actually entails.

Photo: Kaspars Grinvalds (Shutterstock)

Your Local Museum Can Get You Into Others for Free When You Travel

Your Local Museum Can Get You Into Others for Free When You Travel

Tourist passes can save you money when you travel and want to visit local museums, but so can your membership to your local museum. Check with your museum, or the museums you want to visit, to see if your local membership will get you in abroad for free.

Many museums have partnership programs with similar museums in other cities. That means your membership at home will get you in for free or a discounted price while you’re on vacation.

A few examples are the Association of Science-Technology Centers passport program, de Young art museum’s reciprocal membership program, The Met’s partnership program, and the North American Reciprocal Museum Association. If you’re curious, contact your museum’s member services department, or check their site for member benefits—they’re probably listed there if there are partner museums. You can also visit the web site of the museum you want to visit to see if they list partner memberships. You’ll only spend a few minutes checking, but it could save quite a bit of your travel budget.

6 Easy Ways to Get Free Museum Admission | Travel+Leisure

Image from genista.

How Much Do You Save With Generic Brands, and When Is Spending More Worth It?

How Much Do You Save With Generic Brands, and When Is Spending More Worth It?

We all know that the generic, store brand of most goods are cheaper. Most of them are usually just as good if not identical to the name brand. We want to know how much you save by going with the off brand.

Personal finance site Three Thrifty Guys decided to make a chart of their own experience with this experiment. During a typical shopping trip, the site compared prices between 16 different items they normally buy. They found that what would normally cost $56.24 for name brand goods only cost $41.51 by buying store brand items. A total savings of $14.73. Not too bad!

I was surprised at how quickly the savings added up. Choosing the cheapest option resulted in over 25% savings! For my wife and I (no kids), there would be about a $60 difference between choosing generic brand and named brands each month.

Of course, everyone buys different stuff, so how does your experience differ? Have you ever compared your usual shopping budget to see how much you save by skipping the big name labels? Alternatively, when is it worth it to you to spend the extra money to get a different brand?

Brand Name vs. No-name Brand: A Price Comparison | Three Thrifty Guys

Photo by Bossi.

What Zombie Debt Is and How It Can Come Back to Haunt You

What Zombie Debt Is and How It Can Come Back to Haunt You

On Last Week Tonight, John Oliver bought $15 million in outstanding medical debt just to prove how easy it is to start a debt buying company. It was debt that regular people owed, presumably from surgeries, hospital stays, medical procedures and so on. Instead of buying the debt to turn a profit, Oliver forgave it. All of it. The segment outlined the many flaws of the debt and credit industry, but specifically the concept of “zombie debt,” or old, forgotten debt that somehow resurfaces.

As legal site Nolo explains, zombie debt is debt that “is very old or no longer owed.” It’s debt that comes back to life when a collection agency buys it for cheap. It’s not the same as maxing out a credit card and being unable to pay or being flooded with bills you can’t haggle down. Zombie debt is often invalid, and collectors use intimidating, sneaky tactics to get people to pay.

How Zombie Debt Works

Debt collectors make money when they buy old debts incredibly cheap and get people to pay a portion of the original amount that’s bigger than what they paid themselves. Theoretically, that doesn’t sound so bad, right? Collectors just help companies reclaim lost funds, and, after all, we should all repay our debts. Fair enough.

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In practice, though, debt collecting is a very shady business, and zombie debt exemplifies this. The Federal Trade Commission (FTC) lists some common types of zombie debt:

  • debts you already settled with a company or other debt collector
  • debts that were discharged in bankruptcy
  • time-barred debts you may have forgotten or overlooked that are past the statute of limitations
  • debts that no longer show up on your credit report, generally after seven years
  • debts you never owed, like debts resulting from identity theft

It’s easy to say “If you have past debt, you should pay it.” Zombie debts don’t work this neatly. As the FTC points out, they’re often the result of identity theft and they can even be debts you’ve already settled.

How Debt Collectors Get Around Time-Barred Debts

The FTC warns that you can restart the clock on the debt’s statute of limitations if you make (or just promise to make) payments. This is important because it’s how debt collectors turn a profit.

“Statute of limitations” means debt collectors can sue you for a limited amount of time to collect your past due debt. After that time, those unpaid debts are “time-barred,” and a debt collector can’t sue for time-barred debts. This time frame—the statute of limitations—varies depending on your state. Here are the statutes of limitations for all 50 states.

When you restart the clock, collectors can sue you, and many of them do. When consumers ignore these lawsuits, which happens often, they have to pay up, which can lead to wage garnishment.

However, don’t get “statute of limitations” mixed up with the time limit for negative items to stay on your credit report. Most unpaid debt falls off your credit report after seven years from the date it becomes delinquent, no matter how many times that debt is bought or sold. That’s separate from the statute of limitations.

How to Deal With Zombie Debt

Sadly, not all of us will be lucky enough to have a cable news show buy and forgive our zombie debt. We’ve told you how to deal with debt collectors before, and the cautionary rules are generally the same for dealing with zombie debt.

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As you can see in the Last Week Tonight segment (and as you may have experienced yourself), debt collectors can be nasty. They use all sorts of tactics (and in some cases, intimidation and outright lying) to intimidate you into paying, from calling you nonstop to contacting your friends and family members.

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Thanks to the Fair Debt Collection Practices Act (FDCPA), debt collectors are not allowed to call during certain hours, use foul language, or make threats, though. So if you’re dealing with an agency breaking the rules, you can report them to the FTC. Also, abusive or threatening language are also red flags, so make sure you don’t have a scam on your hands, and here are a few questions you can ask to expose a fake debt collector. The FTC lays out your rights in dealing with debt collectors.

Assuming the agency is legit, your next order of business is to tackle them head on and make sure the debt is valid. Check out your credit report and see if the debt is listed. If not, the zombie debt may be a result of identity theft, and you can find sample letters to help dispute the debt at identitytheft.gov.

From there, ask for a “Validation Notice.” Consumer Reports explains how this works:

Even if the caller gives plausible-sounding answers, request a “validation notice” to verify the debt. The notice, which must be sent within five days of initial contact, must include the amount of the debt, the name of the creditor, and a description of your rights under the federal Fair Debt Collection Practices.

The Consumer Financial Protection Bureau offers sample request letters, too. To avoid restarting the statute of limitations, don’t even discuss the debt until you receive that notice.

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If you do indeed owe the money and believe you need to pay, dealing with collectors can still be tricky. We’ve written a guide to help you navigate the process, though.

http://lifehacker.com/how-to-settle-…

In most cases, dealing with zombie debt is easier said than done. A quirky television host might come to your rescue, but don’t count on it. At the very least, you should familiarize yourself with your credit report, know the statute of limitations on any past debts, and understand your rights.

Photo by Ryan Jorgensen – Jorgo

Financial Literacy Alone Won’t Fix Your Money Problems

Financial Literacy Alone Won’t Fix Your Money Problems

Unless you were born into riches, you’ve probably dealt with money troubles. Financial problems can be a struggle, and “financial literacy” is the go-to solution to building good money habits. Create a budget, learn some basic rules, and poof! Our money woes are cured. That’s not all it takes to improve your finances, though. Not by a long shot.

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Financial literacy is, in a nutshell, understanding how money works. It’s very important, and it’s not difficult to learn. In fact, there are a handful of free resources to help you learn all about money. Those lessons can be helpful tools. However, if it were as easy as learning some basic math and rules, we’d all be awesome at money. Less of us would struggle with debt, live paycheck-to-paycheck, or overspend on stuff we don’t need.

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Many people assume financial literacy is the key to fixing these problems, though. For example, we recently wrote about the first thing you should do to get your money in order (figure out why you want to get it in order). Many of you had other ideas, like:

  • Figure out how to budget
  • Pay off your debt
  • Record all of your transactions
  • Learn about compound interest

These are the basics, and it’s absolutely important to have this knowledge in your arsenal. But these answers miss the point. Personal finance goes beyond this knowledge: it’s personal. And it’s important to understand why money is such a challenge for so many people. That way, we can tackle that challenge at full force and learn how to use those tools.

Money Is More About Behavior Than Basic Rules

Whether it’s basic budgeting, negotiating salaries or lower prices, or investing for the future, people often ask “why don’t they teach this in schools?” Well, they do teach this in schools. The problem is, teaching it is not that simple.

Years ago, I interviewed Laura Levine, President of Jump$tart Coalition, an organization dedicated to bringing financial literacy to classrooms. She told me one of the biggest challenges they face is deciding exactly who should teach financial literacy lessons:

There isn’t a way to identify where all the finance teachers are. If you teach algebra, there’s very little debate that’s in the Math Department. But personal finance might be social studies or consumer science or business. There are a lot more variables…Personal finance and financial education are very complex and very nuanced. We want to make sure we’re really assessing and seeing what makes it effective. But we’re not waiting for a perfect solution to get started.

In other words, money isn’t just math. It’s also behavior. Here are a few behavior-related lessons that helped me get my finances in order more than any rules:

Some financial solutions are indeed pretty straightforward, but in general, if you assume money is as easy as setting up a budget, you’ll probably be really frustrated and disappointed later, when you have trouble sticking to that easy budget. It’s not hopeless, though. When you acknowledge just how much money management money depends on habits, willpower, and other behaviors, you can better focus your energy and effort.

The Rules Don’t Always Work

There’s another reason basic financial rules (like “spend less than you earn”) won’t solve everything: they don’t always work.

For example, when I was in student loan debt, I bucked the “save 3-6 months of expenses for an emergency” rule. Instead, I saved a few hundred bucks for an emergency and focused on paying off my debt instead. I wanted to pay my loans asap so I could properly save for the future, and I had a safety net (moving back in with my parents) to fall back on if times got really tough. I took a chance and bucked the rules, and it gave me the confidence to take control of my finances. Plus, I saved a lot of money on interest. It’s not a smart move for everyone, and not everyone agrees with it, but it worked for me.

The point isn’t to break the rules for the sake of breaking the rules. The point is that life is complicated, and the rules are often oversimplified to the point of being ineffective, just so they can be easily taught to others. They’re so oversimplified, in fact, financial experts rarely agree on them.

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Don’t get me wrong—education is important, whether it’s history, grammar, sex ed, or financial literacy. However, unlike grammar rules, personal finance isn’t cut and dried. A lot of it depends on your individual situation, which makes it complicated.

You have to consider your own financial situation and mindset and do what works for you. Sometimes, that means bending the rules. For example, let’s say you start to pay off debt using the stack method (paying off high-interest debts first). It makes the most sense on paper because of compound interest, but let’s say your debt is so overwhelming, you get discouraged and give up on it altogether. The debt snowball (paying off smaller debts first) may work better. The snowball method bucks the basic rule of compound interest, yet research shows it works better for most people because the psychology matters more than math. In short, people aren’t computers.

http://lifehacker.com/5940989/pay-of…

What to Focus on Instead

Okay, you get it. Money management is more about behavior than rules. How do you learn to be good at money, then? Like most habits and behavior, it comes down to practice.

In high school, I was on the soccer team, and I sucked. My coach, bless her heart, explained how it all worked. I had to kick the ball with my foot at the right angle. I had to account for my position when I passed. I followed these rules meticulously, yet I still sucked. Finally, my coach told me, “Forget the rules. Practice your skills.” She put me in more games. She made me practice longer and harder. Eventually, I got better (not great, but better).

You can say the same for money, I think. The rules are useful and necessary, but without practicing your real-world skills, they will only take you so far.

Like a lot of habits and behaviors, the sooner you get started, the better. This is why it’s important to teach kids solid money habits early on (another thing Jump$tart is trying to do). For example, you could:

Many of us don’t grow up learning money skills, though. Our parents were just as bad with money as we are. If you didn’t get these basics yourself, yes, you need to learn the mechanics of building a budget, but more importantly, you need a solid reason to motivate yourself. If you don’t see a need to worry about money, what’s the point in learning skills or rules?

Before anything, it’s important to have a clear idea of why you want to get your money in order, whether it’s to travel more or to support your family. Without motivation, you’re just learning rules for the sake of learning them, and that won’t be nearly as effective as learning the rules to reach an important goal.

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From there, you build better habits when you navigate your weak spots and challenges. For example:

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It’s impossible to nail down the exact habits you need to improve your finances, because, again, so much of it depends on your own situation and personality. The overall point is: when you’re ready to fix your finances, it helps to be prepared for the work that goes into it. When we understand that money is more about mindset and behavior, we’re in a better place to fix the real issues so we can use those rules to our advantage.

Illustration by: Sam Woolley