How many of us are really poor?
My latest MSN column (click HERE to read it) takes a deep dive into recent reports that nearly half of U.S. households are either low income or poor. The Census has been experimenting with new ways to measure poverty, but it’s questionable whether half of us are really struggling.
Still, there’s no question that a lot of people have a hard time making ends meet. Median incomes have dropped, unemployment has soared and tighter credit standards make it harder to get the loans that in the past papered over the fact that so many people’s living standards had dropped.
That’s depressing. But most people have at least some control over their economic fate. There’s a big difference between “broke” and “poor,” as I wrote in a column several years ago:
“Broke” is temporary. It’s running out of money before you run out of month…”Poor” is something else. It’s hunger, and clothes that don’t fit, and homes that are uncomfortable and unsafe. It’s not having enough or even the prospect of having enough.
“Broke” is fairly common. “Poor” is less so…although other Census figures show that nearly one in four households has had a recent spell of poverty. The good news is that entrenched poverty, the kind that lasts for years, is truly uncommon–only about two out of 100 households spent years below the poverty level.
In any case, it’s important to keep the difference between “broke” and “poor” in mind if you’re financially struggling. “Broke” means you can do something about your situation–and I hope you do.
Why you shouldn’t pay old debts
Most debts have a statute of limitations, which means the creditor isn’t supposed to sue the borrower in court to collect the debt after a certain number of years. The statute of limitations varies by the state and the type of debt, typically ranging from two to 15 years.
Here’s the thing: even a small, partial payment on an old debt can revive the statute of limitations. That can allow the creditor to sue you and get a wage garnishment order so it can take money right out of your paycheck.
If it were the original creditor suing you, you might resign yourself to the situation. But often the company filing the lawsuit is not the original creditor. Many times, the company that originally loaned you the money has long since written off the account, gotten a tax break for bad debt and sold the account to a collection agency. So the entity suing you may be a collection agency which purchased your debt for 2 or 3 cents on the dollar–or even less.
The Wall Street Journal has done some good stories lately on the debt-buying industry, and has one today about the FTC’s settlement with Asset Acceptance, one of the largest debt buyers. The FTC alleges people were coerced into paying debts beyond the statutes of limitations. In some cases, the FTC contended, Asset Acceptance reported details of the out-of-statute debts to the credit bureaus in violation of federal credit reporting laws.
Most of us feel a moral obligation to pay what we owe. If bad decisions or bad circumstances have left you with unpaid bills, though, you could be stepping on a land mine if you make a partial payment on old debts. Before you pay, you should understand whether the debts are within the statute of limitations. If they’re not, and you still want to pay, consider negotiating a lump-sum settlement that includes the collector’s promise not to resell any portion of the debt. This is tricky business, though, and you should educate yourself thoroughly before you make the attempt. DebtCollectionAnswers.com, a site run by credit expert Gerri Detweiler, is a good place to start.
Book giveaway! Free! Free!
I’m giving away two copies of the latest edition of my book, “Your Credit Score: How to Improve the 3-Digit Number that Shapes Your Financial Future.”
This is the fourth edition, rewritten from stem to stern to reflect big changes in the credit laws and practices since the financial crisis. If you need to improve your credit after big setbacks or you just want to know how to keep your scores high, this is the book for you.
To enter, leave a comment here on my blog (not my Facebook page). Make sure to leave your email address (which won’t show up with your comment, but I’ll be able to see it). The winners will be chosen at random.
The deadline to enter is midnight Pacific time on Friday Jan. 6. So–comment away!
The two best travel rewards cards
The Capital One Venture and Chase Sapphire Preferred are two of the best travel cards on the market, declares comparison site NerdWallet.
Both offer pretty sweet deals. The Venture card has a 2% rewards rate on all purchases, and you don’t have to deal with blackout dates or other typical redemption hassles. Instead, you book your flight or hotel room directly, and use your rewards points to pay for it. The $59 annual fee is waived the first year.
The Sapphire card is offering a 50,000-point signup bonus that can be worth up to $625 of free travel. You can earn a 2% rewards rate on travel and dining purchases and 1% everywhere else. Plus, you get an annual rewards bonus equal to 7% of the points you’ve earned for the year. The annual fee of $95 is waived for the first year.
A notable feature for travels: neither card charges foreign transaction fees, which typically add 3% to the cost of spending abroad (or ordering from foreign companies at home).
I still like my Starwood Amex card–mostly because we’ve been able to wrangle redemption rates of 4%+by using our points to book Hawaiian resort hotel rooms and sleeper-car accommodations on Amtrak. But we recently added a Venture card to our mix for those occasions when a merchant doesn’t accept American Express.
Remember, rewards cards only make sense for those who pay off their balances in full every month, and you need excellent credit scores to score these deals. Also, you shouldn’t apply for new accounts if you expect to get a major loan, such as a car loan or a mortgage refinance, in the next few months. Wait until that deal closes before you seek any more credit.
If you’re trying to pay off credit card balances, and don’t have the good scores needed to get low-rate balance transfer offers you find on NerdWallet and other sites, consider getting a three-year fixed-rate personal loan from a local credit union to help you pay off your debt. FindACreditUnion.com can help you if you’re not already a CU member.
If you’re hoping to improve your scores, check out my book “Your Credit Score,” which recently came out in its fourth edition.
5 year-end tasks for tomorrow
I’d like to claim to be a model of economic efficiency, but that would be a bald-faced lie. This year, I’m running even farther behind than usual.
So I’ll be scurrying around tomorrow, making sure to take advantage of the last day to squeeze in some important 2011 money tasks. Among others tasks, I will:
Make a Goodwill run. We itemize our deductions, so donations of clothes, toys and household items in good condition win us a tax break. This year I’m using the iDonatedIt app to keep track of our donations.
Make some last-minute charitable donations. I just checked Mint.com to see how much we gave this year, and the total is lower than I intended. So I’ll be making a few donations to our favorite charities.
Set up automatic contributions for next year. The easiest way to give is automatically. Some of the causes we benefit (Save the Children, public radio, the Los Angeles Food Bank) are charged every month to our rewards-earning credit cards, which we of course pay in full. I’m going to look for opportunities to set up a few more automatic donations so I won’t be scrambling at year-end next year.
Create my tax file. I’ll pull out the file where I’ve been tossing 2011 tax information and organize it a bit, including a list of tax documents we’re expecting that we haven’t received yet. As those arrive, I can check them off—and follow up with the issuers if we haven’t gotten the documents by mid-February, when we typically file our return.
Get ready to enjoy a happy new year. In the first days of 2012, I’ll be jotting down some personal and financial goals for next year, since putting our intentions in writing is a powerful first step to achieving what we want. For tomorrow, though, we’ll just be kicking back as a family, ringing in the new year at home. May your celebrations be as peaceful and happy, and may you have a wonderful, prosperous new year.
