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Money Management International Improving Lives Through Financial Education
SUCESS NewsletterFinancial Education Newsletter
Mom and dad can offer moral support but should never cover their child's debt.

The Debt Advisor

by Steve Bucci
Bankrate.com

The Debt Advisor

by Steve Bucci
Bankrate.com

Dear Debt Adviser,

My son, I am ashamed to admit, did not pay back his student loan in a timely fashion, so now 15 percent is being taken from each paycheck and he is having a difficult time meeting the rest of his obligations. The lender will not negotiate. Is there a way around this for him before he goes under? He wants to pay it back, just not so much at a time.
-- Pam

Dear Pam,

Slow down, Mom! I wish your son were writing and not you, not because I don't want to hear from you, but because I would be more optimistic about your son's situation if he were the one asking for help directly. Unfortunately, your son did not come to terms with his student loan lender before collection efforts escalated to the point of a court summons and subsequent garnishment. At this point in the debtor/lender relationship, the lender is no longer willing to negotiate. It will continue to garnish at the legal amount allowed until the student loan debt is paid.

Let me suggest that you can still be supportive to your son without helping him find a way around this problem. Financial stress can be a great motivator for him to develop a budget, set some realistic goals and get his spending under control. Encourage him to take positive action and learn from this situation. Having wages garnished is embarrassing and expensive, but it can still be a cheap lesson that will serve him well in the future. In other words, commiserate but don't help him circumvent and especially, don't co-sign.

Unlike many other obligations that can be dismissed or renegotiated through the bankruptcy process, a student loan is a debt that is very difficult to get rid of through the courts. Plus, they are collectible nearly forever. I have heard of tax refunds and even Social Security payments being taken to satisfy these debts. Loans are forgiven in very few special circumstances where "undue hardship" can be proven, such as being physically unable to work.

Now that we have established that your son owes the debt and that making the payments as ordered by the court are good for his character and future well-being, where does he go from here? Well, I suggest that he rework his monthly budget so that he can meet all his obligations. His student loan debt effectively took over as his priority obligation when his paycheck was garnished. That particular bill will be paid every month, regardless. The next step is to prioritize his remaining obligations and look for places to cut back so he is not spending more than he earns each month.

For your son, that may mean changing where he lives to less expensive housing (it is hoped, not back home with you), driving a less expensive car and/or cutting back on extras like cable television and premium phone service. If things are still too tight and cuts alone won't make ends meet, then considering a part-time job to increase his income would be appropriate. Please, give him all the sympathy you want, but not any money. Eventually his income should increase through pay raises or promotions, and it will get easier for him to make the payments as he earns more.

A last word of caution for my readers who are newly out of school and may be facing this same issue: Trying to escape a student loan garnishment by switching employers won't work. The lender will eventually find you, and you will have to pay. In the meantime, this unpaid debt will be aging on your credit report like an unwanted pimple and cause you no end of problems in getting employment, promotions, insurance and even renting an apartment.

Mom, you have a great opportunity here to help your son move along the path to responsible adulthood. They don't come that often that you can afford to let him get around this one.

Good luck!

The Debt Adviser, Steve Bucci, is the president of Money Management International Financial Education Foundation and the author of "Credit Repair Kit for Dummies."


Regifting

Tis the season for… cyber threats: How to stay safe online

The Monday after Thanksgiving is known as "Cyber Monday"; traditionally one of the busiest online shopping days of the year. In fact, The National Retail Federation (NRF) reports 42 percent of Americans plan to shop online this season.

Unfortunately, just as shoppers hit the Internet to search for deals, cybercriminals are trolling the Web for their next victim. According to the Identity Theft Resource Center (ITRC), November and December are the months when the majority of online identity theft problems occur. And, a significant increase in malicious shopping Web sites are launched between October and December, according to Webroot, an antivirus and antispyware software company.

Practice safe online techniques this holiday season. Protect your personal information and make the most of your cyber shopping experience with these online safety tips offered by the financial educators at Money Management International (MMI):

  • Think before you click. Never click links to unfamiliar Web sites. If you use a search engine to find gifts, treat every result with caution – especially the ones promising a link to an unbelievable deal.
  • Install Security Software. At a minimum, protect your PC with up-to-date security software and antivirus protection.
  • Know the retailer. If you are unfamiliar with the retailer you want to purchase from, look for more information about the company by contacting the Better Business Bureau.
  • Use a Credit Card, not a debit card. If you are a victim of fraud or cybercrime, most credit card agreements limit your liability for the charges.
  • Monitor your credit report. It is important to monitor your credit report on a regular basis to quickly spot anything unusual or suspicious. Visit annualcreditreport.com for one free annual credit report from each of the three bureaus.
  • Keep your password safe. Never reveal your password to anyone. When selecting a password, do not use commonly known information, such as your birth date or driver's license number. The best passwords are hard to guess and have at least eight characters and include numbers and letters.
Finally, only make purchases from secure Web sites. The easiest way to tell if a site is secure is to look at the web address on the page where you are entering your credit card information. Secured Web site start with https instead of http; For more tips on how to stay safe while shopping online, visit the FTC’s “Fight Back Against Identity Theft” Web site.

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How long will this impact my credit?

Posted by Cate Williams

MMI Vice President of Financial Literacy

This is a very common question and the answer can be found in the Fair Credit Reporting Act (FCRA). This law was passed by Congress in 1970 and is enforced by the Federal Trade Commission (FTC). Here is a direct quote from the FCRA on exactly how long a delinquent account can remain on a consumer's credit bureau file. Section 605, 1681, (c) states:

"The seven year period shall begin, with respect to any delinquent account that is placed for collection (internally or by referral to a third party, whichever is earlier), charged to profit and loss, or subjection to any similar action, upon the expiration of the 180-day period beginning on the date of the commencement of the delinquency which immediately proceeded the collection activity, charged to profit and loss, or similar action."

This section basically states that the seven-year time frame starts 180 days after the account becomes delinquent. This is true even if you begin making payments and ultimately repay a debt. Don’t worry if positive information remains on your credit report longer than seven years; this is not damaging to your report or score. In fact, a lengthy credit history is beneficial. Besides, we can use all the good news we can get.

Of course, there are a lot of exceptions. Just when you thought you understood the rules, there are a few rule-breakers to know about.

  • If you have a judgment, it will not automatically be removed from your credit bureau file after seven years. The FCRA states that suits and judgments can be reported for seven years or until the governing statute of limitation has expired, whichever is the longer period. Governing statutes of limitations can be learned by calling your state’s consumer protection office. A list these offices can be found at ConsumerAction.gov. You should also know that in some states, judgments can be renewed indefinitely. A judgment refers to a debt secured to the creditor by a judge’s order.
  • Chapter 7 bankruptcy remains on your report for ten years. -There is no time limit applicable to a report made in connection with credit involving a principal amount (or insurance with a face amount) of $150,000 or more.
  • Debts owed to the government, such as tax liens or student loan debt, may stay on your credit report indefinitely. Once paid, they must be removed seven years from the date paid.

Think twice before you pay someone to try to remove the negative information from your report. No person or company can legally remove accurate items from your report for a fee.

The credit repair industry has made a lot of money trying to convince consumers that they can beat the system. It’s a trick. They flood the creditors with dispute forms. When they are not answered within the required 30 days, the items are removed from your report. You hand the credit repair company a big check and merrily begin seeking new credit.

The problem is that when the creditor finally catches up with their paperwork, the items reappear. Federal law allows creditors who respond after the 30-day timeframe to re-enter information that they find to be correct. Unfortunately, by the time you realize what has happened, the credit repair clinic has most likely vanished along with your money.

The good news is that a 1996 law passed by Congress titled the Credit Repair Organization Act has helped to clean up the industry. The law is enforced by the FTC and by state attorneys general. Under the statute, consumers are entitled to a written contract describing the terms and conditions of the agreement including guarantees of performance. It also gives consumers three days to change their mind and cancel any agreement they sign with a credit repair organization.

If you want to try to work with a credit repair company, please check them out carefully. Always a good rule of thumb: if it sounds too good to be true, it probably is. By the way, applying for a new Social Security Number to run from past credit mistakes is something the government tends to frown on.

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About Money Management International Management International

Money Management International (MMI) is a nonprofit, full-service credit counseling agency, providing confidential financial guidance, financial education, counseling and debt management assistance to consumers since 1958. MMI helps consumers trim their expenses, develop a spending plan and repay debts. Counseling is available by appointment in branch offices and 24/7 by telephone and Internet. Services are available in English or Spanish. To learn more, call
800-762-2271 or visit moneymanagement.org.


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