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

TARGETed

Credit: jscreationzs 

Identity theft is a terrible problem that is sadly becoming more and more common. I must confess that I wasn’t that surprised when I first heard about the Target data breach over the holidays, but as the number of potentially affected shoppers has crept up close to 100 million, a lot more of my friends, family members, and clients have been asking me about it. Ask and you shall receive! Here are some suggestions for how you can try to protect yourself from identity theft whether you are a Target shopper or not:

• Check your statements! It is so easy to throw away the statements or auto pay your bills and ignore your transaction history, but I urge you to take a look. Without reviewing my statements I would not have found out about my Michigan “stunt double” who likes really nice women’s boots from Zappos or my Athens, Georgia, “doppelganger” who went to town at the Apple store shortly after waiting on me at a restaurant. Those two fraudulent instances happened to me in the last three years and could have cost me more than one thousand dollars, but they didn’t because I review my statements.
• Minimize (or eliminate) the number of times you use a debit card for purchases. When you use your debit card (or someone successfully claiming to be you uses your debit card), the money immediately leaves your bank account. When debit card fraud occurs, you will have to fight to get your money back, and it will take time. With credit card fraud you will still probably have to fill out some paperwork, but at least the money will never leave your hands (assuming you check your statement before you pay the bill!).
• Destroy the labels on your prescriptions and on packages you receive so that your information is less available to any trash or recyclable “treasure hunters.” Rip up or shred documents containing personal information, and cut up your expired credit cards before you just toss them in the wastebasket.
• Make a copy of your credit cards and important documents like your passport and driver’s license, and put them somewhere really safe. They won’t be of much value should the originals be lost, stolen, or disappear, but at least you will still have access to your information and quickly be able to find the 1-800 numbers you need to call to take action should a situation arise.
• Be careful using public wireless networks. Computers are not my area of expertise, but I know enough to tell you that really smart, bad people can probably gain access to your information if you are not on an encrypted website or using a network that is not properly protected. I’m sorry, but airports, coffee shops, and hotels probably aren’t the best places to check your bank statement, pay your bills, or conduct personal business.
• Take advantage of some of the notification features and fraud alerts that many banks and credit card companies offer. If someone tries to use my card for a significant amount or in a particular city or state I’m not often in, I’ve been able to set it up so that I get notified. It’s quick, it’s easy, and it’s usually free. Besides, if you’re spending a lot of dough in a lot of different cities, it can be a good reminder for you to cool your spending jets!
• Review your credit report every year or two. You’re entitled to a free copy of your credit report every 12 months from Equifax, Experian, and TransUnion, so take advantage of that. Credit reports can help you detect identity theft, and they are good to review to make sure they are correct and up to date as credit reports can affect loan interest rates and even job applications.
• There are tons of other things you can do to protect your identity, like freezing your credit or purchasing more encompassing identity theft protection services. If you are really worried, have been a recent victim of identity theft, or have a reason to think you could be at a high risk of identity theft, you may want to look into some of these additional techniques and services. Either way, I’d advise you to think like a thief when it comes to identity theft prevention - at least make it hard for them!

 

Target probably should have been more careful, more vigilant, and had more safeguards in place to prevent or at least quickly detect identity theft. That being said, all of us probably should.

 

-Tom

The Lightning Round: Take 2

Credit: FreeDigitalPhotos.net

Thanks to all of you for the many questions I received. I’m back from vacation and ready to roll, so now, as promised, here are my responses to five of your questions...

1. What is the difference between banks and credit unions? And which is better?
                                                                                                                              - Sandy              

Banks and credit unions are very similar. A credit union is essentially a group of owners or members who have pooled their cash to form their own bank; think teachers’ credit unions, airline credit unions, corporate credit unions, etc. It is usually a special bank for employees of a certain company or people of the same organization or trade. Since credit unions are smaller, they are known for having better customer service and for being more flexible. That being said, they probably have fewer account options, a less sophisticated website, and fewer locations than bigger commercial banks, like Bank of America or Wells Fargo, which are some of the possible advantages of banks.

Another major difference is that credit unions are usually not-for-profit, so they probably charge lower fees and offer slightly more favorable interest rates on savings accounts and loans to their members. However, because they are smaller, credit unions can also be more susceptible to failure than the larger national banks.

Are you trying to decide between a bank and a credit union? If so, and without knowing your details, I might leave my savings or rainy day fund with a credit union to get higher interest returns and maybe take out a mortgage or loan with them to get a better rate and more personal service, but I'd keep my day-to-day accounts with a larger bank, so I would have more branches to visit, more ATM access, and a larger network of customer service resources at my disposal if I was out of town. Hope that helps!

2. I’m heading to graduate school in the fall. Although my husband and I have saved up towards it, we will need to take out loans. In the years after I finish my degree, is it better to aggressively pay off the loans before saving towards a house down-payment, or to pay down loans at a moderate rate while saving for a house? Keep up the good work!
                                                                                                                               - Anonymous

Great question! Please don’t be too mad at me, but the answer is: it depends.

If you are close (or think you will be close) to hitting that “magic” 20% down payment threshold when you and your husband decide to buy a house, I would probably pay down the loans at a fairly minimal rate and direct most of your saving firepower towards hitting the 20%. Remember, 20% down usually means more favorable interest rates, lower monthly payments, and probably avoiding the additional expense and complications of Private Mortgage Insurance (PMI).

If 20% down is not a reasonable goal for you, I would probably direct more savings firepower toward extinguishing the loans. Student loans may offer a potential tax deduction, but they are usually just a fixed expense that can be a painful burden on recent college graduates and relatively new workers. The sooner you can eliminate that debt, the sooner your cash flow will improve, your financial position will strengthen, and you will probably even feel better.

Also worth mentioning is that the interest rates on your loans do matter. If the interest rates are much more than 5% or 6%, I would definitely work toward extinguishing the loans. If the interest rates are lower, historical returns would tell you that you might be better off in the long-run saving or even investing some of your funds. I’m pretty conservative and have a disdain for debt, but as you might recall, even I list paying off loans as tied for 7th place on my list of financial “Bear Necessities.” Good luck heading back to school!

3. Paying off student loans vs. saving for your child's college (and where/how to set that up) vs. saving for retirement.
                                                                                                                               - Rebecca

This is also a good question, and since it’s a little related to the second question, I thought we’d go ahead and cover it now. (For those of you looking for the Cliff Notes, saving for retirement gets the gold, paying off student loans gets the silver, and saving for your child’s college takes the bronze.)

In my book, gaining financial independence should be everyone’s long-term financial priority. By financial independence, I mean achieving the ability to sustain a standard of living or quality of life that you like or are willing to tolerate for the rest of your life without having to continue to work. This is primarily achieved by living within your means, saving for retirement, and paying off debt. As far as student loans vs. saving for retirement, I’d probably recommend maximizing any contributions to a 401(k) plan or retirement plan to the point that you receive any maximum employer matches you may have available to you and then making maximum IRA annual contributions (to a Roth, if possible) before I did much more than the minimum payments toward student loans. Then, as I mentioned in question #2, I’d suggest you look at the interest rates, consider your personal risk tolerance, and then either assault the debt principle or look at saving or investing a little more.

Saving for your child’s college is admirable and a goal of many parents, but it really should come after your own financial situation. I know this may sound harsh, but what if your child one day gets a scholarship or decides not to go to college and those funds you painfully tucked away could have been used toward paying off your own student loans or saving for your retirement? Besides, if worse comes to worst and you haven’t saved enough money to pay for all of your child’s college, they can always take out student loans themselves. After all, you mentioned that you have student loans, and I know you turned out alright! All this being said, if you feel that it is your responsibility as a parent to pay for your child’s college education and you have the additional financial capacity to set aside some funds for your child’s college, the sooner you start saving, the better. I would recommend opening a 529 plan, a state-run education savings plan, because they are easy to set up and relatively flexible, and distributions used toward your child's qualified college costs come out tax-free. You could ask if grandparents, aunts, or uncles would also be willing to contribute, and many of the plans offer convenient, automatic age-based investment allocations that will periodically adjust to prudent risk allocations as your child gets closer to college (more risky when your child is younger, less risky as your child gets closer to college).

4. Do you watch shows like Squawk Box or Mad Money? Would you recommend those shows?
                                                                                                                              - Anonymous

(Squawk Box is as CNBC puts it, “the ‘must see’ pre-market morning news and talk program, bringing Wall Street to Main Street” and Mad Money is a show hosted by television personality and former hedge fund manager, Jim Cramer.)

I chose your question because I thought it was an interesting one, but, I do not watch these shows. I have previously watched Squawk Box, and I’ve seen Mad Money on the television in waiting rooms and in airports, but I don’t watch these particular shows or shows like them very regularly. They are intriguing, but personally, they stress me out and make my blood pressure go up.

The main reason I don’t watch these shows is because they target people with different investment philosophies than mine. There is nothing necessarily wrong with these shows, they are very popular, and many people might well claim that the advice they get from watching investment talk shows has helped them financially. Maybe so, but I don’t believe in acting impulsively. I believe if someone is talking about a stock tip, it’s often already too late. I believe in investing in a diversified portfolio made up of different holdings that will perform well under different market conditions. I believe in the cost savings and tax effectiveness of long-term investing versus short-term trading.

I’m all for people watching Squawk Box and Mad Money if they enjoy them and find their reporting insightful, but I would not recommend these shows to someone per se because I feel like they try to convince the viewer that they are suddenly empowered to trade and invest after watching. Call me crazy, but I believe that it’s a lot easier to lose money quickly than to make money quickly, and I will be the first to admit that watching Iron Chef does not make someone an exceptional cook!

5. Recently, my credit card was fraudulently used. I was alerted of the fraudulent charges by the financial institution the card is through, was able to remove the charges and got a new account number. I've heard about more elaborate identity protection services, but I am not sure if they're worth the investment. Do you ever recommend these types of services to clients? Also, are there any steps you'd recommend to clients after they experience credit card fraud, such as getting credit reports, etc.?
                                                                                                                             - Kristen

I’m so sorry to hear about your troubles. Several months ago, someone bought several hundred dollars worth of shoes with one of my credit cards, and I had to go through a similar routine. It’s not pleasant, and if you are like me, you feel a little violated, but you can recover and move on.

As you mentioned, there are many identity protection services available. As identity theft and cyber crimes continue to rise, there will likely be even more services available in the future. However, generally speaking, I do not recommend these types of services to clients. They could work and they could be worth the investment, but if you are vigilant, you are likely one of your own best (and least expensive) forms of protection.

I advise people to review their credit card statements and bank statements closely every single month, whether in electronic form or hard copy (which you must already be doing if you caught the fraudulent charge, so good job!). I advise people to be careful about using auto-pay and just assuming all is well. I advise people to save their receipts, use their checkbook ledgers, or use a program like Excel or Quicken to track their cash inflows and outflows to make sure they are the only ones spending their hard-earned money.

If you’ve already had one card fraudulently used, I would follow the steps I have mentioned above even more carefully just in case. If you have the option to have your credit card companies call you for purchases over a certain amount or purchases outside of the country, I would recommend utilizing these features. I would recommend not using the same password, secret question answer, or PIN for all of your financial accounts as an additional safeguard. Also, as you mentioned, checking your credit reports once every year or two (you are allowed to check for free once every 12 months, but you don't want to check too often because it can impact your credit score) can also be a good idea to make sure your identity is secure and all of your financial affairs are in order.


Thanks again for all the questions. Please always feel free to ask me anything that you think I may be able to help you with though, Lightning Round or not.

-Tom