The Cobbler’s Children Have Shoes!

Credit: Gualberto107 at FreeDigitalPhotos.net

As you have probably heard, Equifax, one of the national credit bureaus, had a major data breach back in May – July of this year. Over 143,000,000 Americans’ sensitive personal information may have been exposed. This information included names, Social Security Numbers, dates of birth, addresses, and driver’s license numbers. In addition, credit card numbers of approximately 209,000 people may have also been exposed. Since this massive breach recently became public, consumers have been flooded with information and suggestions from different banks, financial institutions, and the media, so today I wanted to throw in my two cents.

I must admit, at first, I did not want to do anything. I found myself thinking “I’m busy, I’m tired, and it’s probably not my data anyway… but wait, did they say 143 million?!” Due to moving in the last couple of years and having to swap out family cars for smaller cars, I had not frozen my credit so I could avoid the hassle of “thawing” (unfreezing your credit) and then having to refreeze. I’m also a little embarrassed to admit I had never formally signed up for any identity theft monitoring or protection despite my discussing this topic with many of my friends, family members, and clients. Rational thinking returned, motivation coursed through my veins, and my thinking became “143 million? Yeah, I’m probably one of them. What am I waiting for? I help people with their personal finances for crying out loud! It’s time for the cobbler’s children to have shoes! It’s high time for me to review my family’s annual credit reports, freeze my family’s credit, and sign up for some identity theft monitoring and protection.” Well, I’m pleased to report to you I did, and here’s what I experienced in the process.

Before I froze my credit, I decided I would make sure all was well. I used my right under Federal Law to run a free, annual credit report for myself and my wife with all three credit bureaus (Experian, Equifax, and TransUnion). I got three different looking reports for both my wife and me, but everything appeared to be in order. All data was right, all lines of credit (credit cards, mortgages, etc.) were known to me and were correct, and we had no outstanding, unpaid bills. This was what I expected, but it offered peace of mind to confirm. If you find something that does not look right, dig in. At best it’s a mistake you can correct and potentially boost your credit score, and at worst it can be a fraudulent line of credit tied to you that could be hurting your credit score or be a sign of a successful fraud or identity theft against your good name.

I then went to Experian to freeze my credit, and after proving I was me by answering a few questions, it was taken care of. Equifax was next and they were even easier to freeze my credit with. They did give me a painfully long PIN to keep up with, but other than that, no complaints. TransUnion was last, and again, no real troubles. I will warn you, they do require unique usernames, so I did have to get a little creative. All this said, be prepared to answer trivia questions about your telephone numbers, mortgage holders, banks, previous addresses, mortgage amounts, monthly mortgage payments, credit card companies, and student loans. Be prepared to write down or record all of your new usernames, passwords, PINs, and login information, so that one day you can smoothly thaw your credit if need be. Also be aware that depending on what state you live in, this process may cost you a few bucks (it was $3 per credit freeze per credit bureau in Georgia). Finally, with the angry and scared hoard of consumers trying to freeze their credit like you, I would suggest you freeze your credit online (not over the phone) and late at night when there is less traffic to make this as painless of a process as possible for you.

With frostbitten fingers after all of the credit freezing that had gone down I turned to finding some identity theft monitoring and protection. There are an ever growing list of companies providing various versions of this service out there, and I recommend you research several providers to determine what level of service monitoring, what level of identity theft restoration coverage, and what price point is appropriate for you. I will say that I think some type of monitoring and protection is probably a good idea, but I would not necessarily hurt the family budget with your selection, either. Either way, the LifeLock coverage I decided to go with did instantly identify that my LinkedIn login information may have been sold on the dark web back in 2016. Lovely! LinkedIn notified me about the breach and I changed my password back then, so I think I’m good, but that is the type of warning certainly good to receive, particularly if you are the kind of person who likes to use the same password for everything!

If you have already reviewed your credit reports, frozen your credit with all three credit bureaus, and have some sort of identity theft monitoring and protection in place, my hat is off to you. If you have not, I would suggest you make time to do so in the very near future to make sure your financial house is as protected as it can be.

I’ve heard it said there are two types of people out there: those that have been hacked and those that don’t know they have been hacked. I sincerely hope that’s not the case, but sadly I don’t think any of us can afford to take that chance!

-Tom

Freezing Your Credit

Credit: dan at FreeDigitalPhotos.net

So my wife just joined a whole bunch of people who received a letter from a school in the Southeast explaining that some of her personal information may have been inadvertently exposed on the university’s website. That’s frustrating. What’s even more frustrating is that she didn’t even go to school there! Thankfully, she was a UGA Bulldog, but I digress…

It’s things like this that make you want to sand off your fingerprints and burn your Social Security Card. Every day in the news, there’s another data breach here or another identity theft ring there. It seems like an experience with identity theft is becoming just a matter of time, not a matter of if. With that in mind, today I thought I’d mention a defensive maneuver you can take called freezing your credit.

Historically, “freezes” were more available to previous victims of identity theft, but now all of the major credit bureaus are allowing people to freeze their credit for a small fee. Freezing your credit does not affect your credit score, it does not prevent you from getting your free annual credit reports, and it does not prevent your existing creditors or government agencies from accessing your credit report. It does allow you to temporarily seal your credit reports so identity thieves cannot establish new lines of credit in your name even if they are able to obtain a lot of your personal information. This is because most new creditors need to see your credit report before they will approve opening your new account. In short, if they can’t see your credit report, they probably won’t approve a new account for the identity thieves to go to town with!

If you’re going to be taking out a mortgage or a car loan in the near future, if you are going to be moving and opening up a lot of new utility accounts, or if you are planning on adding another credit card, I might not recommend this as there is a little administrative time involved and some slight costs to freeze and unfreeze (or “thaw”) your credit.

If things are running pretty normal, you want to have a little more identity protection, or you receive a letter like my wife did, you may want to consider this. Nothing is guaranteed, but it couldn’t hurt, and it might very well be the difference between “you” going on an unauthorized shopping spree and some disappointed identity thieves.

If you’re interested, contact Equifax, Experian, and TransUnion. And yes, either do all or do none or else your freeze will be incomplete.

Brrrr…

-Tom

How to Fix Your Credit

Credit: khunaspix

I know a lot of good people with not-so-good credit. Most people who ask me how to improve their credit are not repeat offenders. They had an emergency, they decided to take a big trip, or they got a little carried away with their first credit cards. Still, some people have serious, recurring credit problems and are headed in the wrong direction. In this post, I'd like to share five tips on how you can right the ship and start improving your credit once and for all.

1. We’ll call this “1(a),” as in order to have credit at all (good or bad), you need to have used credit. If you don’t have a credit card, get one. The sooner you start wisely using a credit card and paying it off every month, the longer your credit history will be. The longer your credit history is good, the higher your credit score, which will help you get the most favorable terms when it comes time to buy that house or car. If you’re solely focused on trying to improve your credit score, you might even consider using your oldest card (the one you’ve had the longest) over your newer ones.
2. Pay off what you owe every month! If you have a mortgage payment or a car loan payment due, at least pay what is due. If you have a credit card bill, don’t just pay the minimum - pay it all off! If you can’t pay it all off, I understand, but you really need to spend less next month so you can pay it off then. Building up credit card debt doesn’t usually end well, trust me.
3. Even if you can comfortably pay off your credit card every month, try to pay it off before it gets near its limit, even if that means making payments several times a month. Some people have low limits (and some people want low limits, which isn’t a bad thing), but believe it or not, letting your credit card bill rise to near its maximum allowable limit can have negative consequences for your credit score.
4. Long-term debt can help. Associated with a long, good credit history is often the steady reduction of student loans, car loans, mortgages, and home equity lines of credit. Steady, recurring payments (with a little extra principal every now and then) are really one of the best things you can do to improve your credit score. Now I’m not suggesting you go take out a huge thirty-year note on a line of credit in the name of boosting your credit score, but I am saying that by steadily paying your long-term debts you are literally showing other lenders that you would likely be a good steward of any funds they lend you in the future.
5. I’ve mentioned this in previous posts (The Best Home Loan You Could Possibly Hope For and TARGETed to cite a few), but you really should check your credit reports from time to time at annualcreditreport.com. You can check your credit once a year with all three credit bureaus for free if you like, but I also like the strategy of people who check their reports with a different bureau each year, and they just rotate to make the task seem less daunting (unless they find an error and then they check with all three bureaus). I would suggest that you check your credit reports at least every several years, but definitely before you buy a car or take on a mortgage. When you get your credit report, you’re looking for errors, to make sure all the types and forms of credit you are using are listed, and to make sure the limits on each type of credit are up-to-date. While we’re not usually talking massive improvements to your credit score, correcting the fact that you made your October 2013 payment on time and that your Visa actually has a $10,000 limit instead of your initial $5,000 limit can only help. If you find an error, here’s a helpful site listing tips and contact information for the three credit bureaus provided by the Consumer Financial Protection Bureau.

Your credit score can range from around 350 to 850, and anything above a 720 or so is usually considered pretty good. Now just like Rome, your credit score cannot be built (or improved) in a day, but unlike Rome, it can be destroyed pretty quickly. Credit reports usually go back about seven years, so unless you find and correct a serious error or two on your credit report, there really aren’t any “silver bullets” (contrary to what some billboards and late-night commercials will try to tell you). If you’ve done a good job handling your debts and you have a great credit score, keep up the good work. If you’ve had some struggles with credit cards and being able to make payments on all of your debts, I’d encourage you to implement these tips and simply do better going forward. As they say, time heals wounds...and credit scores!

 

-Tom

Dealing with Debt

Credit: Stuart Miles

One of the most common questions I receive is about paying down debt. If you only have one debt, be it a student loan, a car loan, or a home loan, it’s pretty easy: make the monthly payments and pay a little extra when you can until you don’t owe any more. Paying off that loan will remove a recurring, fixed expense from your monthly cash flow, eliminate your interest expense, and free up some more cash for you to save or invest. However, if you have multiple debts, things can get a little more interesting…

Let’s say you have a car loan for $15,000 at a 4.5% interest rate and a $200,000 mortgage at 4.75%. What should you do? Any financial advisor with any sense at all would encourage you to make the minimum payments on both of your personal liabilities at the very least, but if you ask some of the great financial minds out there which debt you should focus on beyond your minimum payments should you have a little extra cash lying around, you would probably start hearing conflicting answers. What I mean, is that from a longer-term point of view, you should always attack the debt with the higher (or highest) interest rate to maximize your net worth, but from a shorter-term point of view, you should probably go ahead and pay off the smaller (or smallest) debt to lower your fixed expenses a little bit and take some pressure off your cash flow. Every case is different, but if the interest rates of the two debts you are trying to decide between paying more towards are very close AND the amount owed on one of them is significantly smaller than the other one, I’d usually recommend you go ahead and eliminate the smaller debt. The interest rate savings you are giving up are most likely minimal compared to the satisfaction you will feel and progress you will see by eliminating a debt.

Credit card debt is often another matter entirely. Let’s say you have six credit cards with balances on them that you can’t pay off at the end of the month. What do you do? First, read this blog more often, and unless you find yourself in a really, really bad situation, don’t ever rack up a credit card bill you can’t completely pay off at the end of the month! Just say no! Seriously though, what should you do? I’d get a sheet of notebook paper and write down the name of each credit card, the balance you have worked up, the interest rate you will be charged, the minimum payment due, and the maximum credit limit of each card. Make a nice little chart if you like. Either way, I’d advise you to make minimum payments on all of them and then go after whichever credit card has the highest interest rate regardless of the balance you owe. Credit card interest rates have teeth and fangs, so when we’re talking 15% to 25% interest rates or higher, you should really focus on stopping the “interest rate bleeding” as quickly as you can. One other thing probably worth mentioning is that if you have some credit left on some of the cards with lower interest rates, you could potentially take advantage of that remaining credit and try to pay down (or pay off) some of the cards with higher interest rates if your particular credit card(s) will allow you to do so. It’s a creative approach, and you’d need to be careful, but it could work and save you some interest. If you actually resort to this tactic, don’t just pat yourself on the back: go get a pair of scissors and cut that paid-off credit card down its back!

Everyone with debt is in a different financial position with different cash flows and different assets at their disposal, so my proposed debt reduction strategy is not always the same. Whatever path I advise, or more importantly, whatever path you choose to take, I encourage you to take that “freed-up” cash you have every time you pay off a debt and go ahead and put it towards paying down your next debt. This practice is often referred to as a “snowball,” and if you hold true to this strategy, you can really pick up some momentum towards becoming debt-free. 

Almost everyone has debt or has had debt. Please don’t hesitate to let me know if I can help you come up with a plan tailored to deal with your debt.

-Tom

Financial Advice From 1796

Credit: FreeDigitalPhotos.net

Leader of the Constitutional Convention, the commander of the Continental Army, and the first American president, George Washington is considered by many to be one of our nation’s greatest heroes, renowned for his character and leadership. In his 1796 Farewell Address, Washington masterfully articulated his reasons for not seeking a third term of the presidency and offered an eloquent argument for the importance of patriotism and protecting liberty. He also offered some prudent financial advice in a portion of the speech penned as “Warnings of a Parting Friend.” I believe these points still hold true, and I thought I'd share some of them with you today.

Quote #1: “And there being constant danger of excess, the effort ought to be by force… to mitigate and assuage it. A fire not to be quenched, it demands a uniform vigilance to prevent its bursting into a flame, lest, instead of warming, it should consume.”

Washington seems to be speaking about the danger of political parties, departments within the government, and individuals who try to seek more power and riches for themselves. He indicates that the spirit of always wanting more is good to a certain extent (a fire not to be quenched); however, if not vigilantly watched or kept in check and balanced, it could destroy (consume). This lesson can still apply to both personal and government spending and the importance of living within our means.

Quote #2: “As a very important source of strength and security, cherish public credit. One method of preserving it is to use it as sparingly as possible…, but remembering also that timely disbursements to prepare for danger frequently prevent much greater disbursements to repel it...”

Washington appears to be emphasizing how important having good credit is. He was advising the nation and its citizens to be careful how often they use credit and for what purpose. Washington also seems to acknowledge that for a prudent purpose, credit could and maybe even should be used if the benefit ensures stability and offers a hedge against potential risks. These important financial lessons should jump out of history books and into our personal and government spending habits!

Quote #3: “…avoid likewise the accumulation of debt, not only by shunning occasions of expense, but by vigorous exertion in time of peace to discharge the debts which unavoidable wars may have occasioned, not ungenerously throwing upon posterity the burden which we ourselves ought to bear. … You should practically bear in mind that towards the payment of debts there must be revenue…”

Washington warns against going into debt unless the expense is absolutely necessary. In today’s times, many people incur debt to go to school, to purchase a car, or to buy a home, but that does not necessarily mean you should go into debt if you don’t have to. Washington also points out that debt incurred during hard times should be repaid during times of peace and prosperity; if not, the debt will likely not get paid off. (He has definitely been right about that on a national level!) On an individual level, the takeaway is to consider paying off debt when you have extra cash available, and ideally to pay it off sooner rather than later.

Washington was a truly legendary leader, and in his Farewell Address I believe he was speaking to the nation as a whole and to its people as individuals. I also believe Washington’s advice is as timely and true in 2012 as it was in 1796. With such powerful and still-applicable words, it’s no wonder why reading Washington’s Farewell Address has been an annual tradition in the U.S. Senate since 1896. And remember, we know Washington’s words must be true because he could not tell a lie!

-Tom