Personal Finance Advice

Have you ever wondered what would happen if you just gave up and stopped paying your bills? Most people struggling to get debt paid off have had the thought cross their minds, but most people dismiss the thought and stay the course.  If you decide to just stop paying your bills, here is what you can probably expect:

1.  Creditors at first will be relatively cordial.  You’ll get letters and e-mails asking if you have maybe “overlooked your payment” along with apologies if the letter and payment have crossed in the mail.  Some creditors may call you to find out when they can expect payment.  If a late fee has been assessed they’ll let you know the amount, and you may also be notified that your interest rate has been raised.   

2.  Miss two or more payments, and creditors start getting testy.  If you have ever dealt with a creditor who is trying to collect on a series of missed payments then you know where the phrase no more Mr. Nice Guy comes from.  This is when creditors start to get aggressive in seeking repayment.  They don’t want to have to send the debt to a collection agency, but after a certain point that’s what happens.  If your debt is secured with something - a house or car, for example - then you might start to receive threats of foreclosure or repossession.

3.  Debt collection agents get involved.   While some creditors have in-house collection departments, others sell the debt to collection agencies.  The agents who work for these agents are aggressive and will use whatever legal methods possible to get payment on the loan.  You might get offered the chance to settle on your debt after you haven’t made payment for several months, and this means you can pay a portion of the balance and everyone calls it even.

Did I mention your credit report is majorly damaged at this point?

4.  Creditors either get tough or throw their hands up in surrender.  There comes a time when it becomes blatantly obvious to everyone involved that the debt isn’t going to get paid, so generally one of two things happen at this point.  Either the creditor or collection agency sues you or takes some other course of legal action, or the debt is charged off.  A charged off debt means that the lender (or collection agency) has decided to no longer pursue payment.  This does not mean that you no longer owe the debt.  It simply means that you may not hear from collectors demanding payment, unless the charged-off account is sold to another collection agency that decides to go after you for the money.

5.  Kiss credit approvals goodbye.  Now that you have effectively trashed your credit rating, you can expect to either get denied for whatever credit you apply for or to get approved with embarrassingly high interest rates.  Since your credit score effects other aspects of your life too - such as the ability to get a job, take out an insurance policy, or rent a place to live - you’ll feel the effects of the decision to stop paying your bills for quite some time.

6.  Time heals all wounds…eventually.  Delinquent items do eventually fall off your credit report, but this doesn’t mean that you no longer owe the money or that the creditor can’t come after you for payment.  You don’t magically stop owing money to someone just because the debt is no longer reported on your credit history.  Depending on what state you live in, some creditors can hound you for a long time.

The better solution? Pay your debts and don’t fall behind in your payments.  If you do start to fall behind, work with your creditors instead of against them.  You may be able to save your credit score and work your way out of a potentially bad situation.

Sometimes the price you pay for something is not the actual cost.  Socioeconomic experts have used a fast food hamburger as an example: The burger may cost less than a salad off the same menu, but the long term cost of that burger far exceeds the long term costs of the salad when it comes to the detrimental effects the greasy burger will have on your body.  If you consistently choose salads over burgers then your odds of having high medical insurance premiums decrease, in theory.  

You can use this same theory to realize the true cost of the other things you spend money on too.  You may pay a pretty penny each month for your gym membership, but if you actually use the membership to your full benefit, and get exercise that you may not have gotten otherwise, then the health benefits far outweigh the price you pay to maintain your membership.  In other words, when it comes to personal finance, sometimes the price you pay for something - even if it initially seems to be an indulgence - is completely worth it.  In the long run, you might actually be saving money.

Using this same theory, what other indulgences may wind up saving you money in the long run? 

A massage costs money, but if it relaxes you enough during your time off to increase your productivity while you are working then the cost of the massage may be worth it.

A vacation costs money, but if the time away allows you to regroup and get refreshed then the costs associated with the vacation may be worth it.    

A luxury car costs more than an economy car, but if the safety features on the luxury car save you from devastating injuries during an accident, then the car was well worth the price you paid.

Then again, it’s easy to twist things around to make them into something that will justify something you want to buy, even though you don’t really need it and certainly can’t afford it.  Take, for example, a woman who pays an enormous fee to join a trendy yoga studio.  She does yoga infrequently and there are ample yoga studios in town offering comparable classes at a fraction of the cost.  She chooses the trendy studio for two reasons:

1.  She wants to be seen there.

2.  She justifies the expense by saying it will help her lose weight and stay healthy.

Sure, yoga can help maintain fitness levels, but if the main reason she joined this particular yoga studio is because it’s where all the stylish people in the city go then the money she pays is mostly a waste.  She can join a less expensive yoga studio, or just not join one at all since she rarely makes use of her membership.

Examine the true cost of the things you pay for.  Rarely is the true cost of something the actual price that you pay.  When you look at all the impact your purchases can have on your health, the environment, and your personal financial standing, you realize that the price tag isn’t entirely indicative of everything the purchase will cost you in the long run.  

A new trend seems to be popping up, especially among places offering quick transactions such as fast food restaurants and drive-thru coffee shops.  Instead of automatically handing over the receipt for the purchase, the cashier asks, “Do you need your receipt?” It may be because so many people turn around and toss the receipt away, or because the establishment is trying to save a little bit of money in paper, but the question is becoming more and more prevalent.

Your answer, of course, should be, “Yes, please.”

Think about what a receipt is.  It’s concrete proof of the transaction with the merchant.  It shows what you purchased, how much you paid for it, and what day and time the sale took place.  You might not think it’s so important to hang on to a receipt -especially when it’s for a relatively small amount - but if you used a credit or debit card to make the purchase then you should absolutely request a receipt.  Why? Here are a few reasons:

1.  You might want your money back.  Suppose you swipe your card, grab your latte and then drive to work.  You don’t take a sip of your drink until you’re walking into work, and it’s the worst latte you’ve ever had in your life.  You call the coffee shop and the manager tells you to bring your receipt and you’ll get your next latte free of charge, and they’ll throw in a pastry for your trouble.  If you don’t have your receipt, you can’t prove you ever bought the foul latte.

2.  You might need to prove the amount you spent.  You get your credit card statement in the mail and there is a charge from your favorite fast food restaurant for $167, which is a great deal more than what you usually spend there.  In fact, the receipt you kept says that the charge was supposed to be for $16.70, not $167.  You’ll have much more luck getting the error cleared up if you have your receipt. 

3.  You can identity someone if fraud becomes an issue.  Granting strangers access to your credit or debit card number can be risky, and using your card for purchases is no different.  If you find a slew of fraudulent charges on your credit card statement the very same day you bought lunch from a shady character at the corner deli you may be able to reference the receipt to identify the employee who you think might be responsible for the theft.  It’s certainly easier than calling the deli and asking for the name of “the guy who worked three weeks ago and had a bad attitude.”

What should you do with the pile of receipts you will inevitably collect in between debit and credit card statements? Just find a place where you can place them and then toss them after your statements have arrived and everything looks accurate.  There is no reason to sift through the receipts unless you suspect there is a problem or error.

You should keep receipts of anything you may need to return or anything of high enough value that you should have the receipt for insurance purposes.  Of course, keep receipts for all business expenses for when you file taxes, otherwise you may not be able to claim all the deductions you had planned on claiming.

Think of receipts as simple safeguards to make sure you don’t get charged for something you didn’t actually buy.