The Fine Print

Most Americans have no idea that the US Treasury Department, which is the government agency that prints and issues money, goes to great lengths to help people whose money has been partially destroyed. If you have a house fire, for example, and your paper money gets burned, the US Treasury may be able to exchange some of that damaged money for new bills.

You might accidentally rip up some money by dropping your wallet underneath the lawn mower. Perhaps you wind up washing some old delicate bills in the washing machine by mistake and are disappointed to learn that they fell apart during the spin cycle. You can’t take that money to the store and expect anyone to accept it, and chances are you just consider it lost for good. But the good news is that US Treasury has an entire department dedicated to sorting out this kind of problem for people whose money has gotten badly damaged through some innocent mistake or mishap.

In one case, for example, a fellow though he had lost much of his life savings because of a fire that burned up an entire stash of currency he had at home. He was naturally distraught, but after speaking to people at the US Treasury he gathered up the ashes and bits of burnt paper money, put everything in an envelope, and mailed it to the Treasury’s offices in Washington, DC. Specialists working at the Treasury examined the charred remains under microscopes, sorted out the leftover bits of money and then assembled them like a jigsaw puzzle, and eventually were able to verify that much of the money was actually legitimate. Although the cash was far from intact they refunded him an amount equal to what they could salvage, so he was able to recover much of his lost cash.

So if you have a torn or otherwise damaged bill – or even an entire wad of ruined cash – contact the US Treasury before you give up and consider the whole thing a loss. The Treasury prides itself on being able to help people in those kinds of situations, and they have an entire team of people devoted to replacing money that is accidentally damaged. They may be able to help you recover your money and get paid back for it – even if your child mistakenly put it through the garbage disposal or paper shredding machine.

These days it is common for couples who are not legally married to live together, buy property together, and live the same kind of life that traditional married couples do. But they should be aware that they do not have the same legal protections as legally married couples. That’s because most tax laws, legislation regarding inheritance of estates, and many real estate laws favor legally married couples while they fail to recognize unmarried couples in the same way. You can live with your partner as an unmarried couple for decades, for example, but if one of you dies the surviving partner may have absolutely no legal claims to the house or other assets that you have shared together as a couple.

That is why unmarried couples should seek out a qualified attorney and draw up special documents that clearly state each person’s intentions, possessions, and financial responsibilities and obligations. A skilled lawyer can, for instance, create documents that offer legal protection for real estate ownership when the property is shared by an unmarried couple.

Let’s say, for example, that a couple buys a house together or one person owns the house before they meet and after they move in together the other partner starts contributing to the mortgage payments. What happens if they break up? Does the partner who name is on the deed owe the other person any refunds for mortgage payments? If an unmarried couple leases an apartment together and then splits up, who gets to stay in the apartment or who is entitled to the refunded deposits if they both move elsewhere? These and other questions can be answered by an attorney and save the couple lots of potential problems down the road.

When a legally married couple experiences a divorce, the property is divided according to state laws. But there are no such laws governing the distribution of assets when an unmarried couple breaks up, so if you are in that situation it is important for you to seek legal help before it is too late. Otherwise you can jeopardize your financial security and assets and create even more pain and confusion between you and your partner in the event that you decide to go your separate ways.

Many consumers make the mistake of assuming that if they get into too much debt by running up credit card balances, they can use bankruptcy as an escape hatch of last resort. But declaring bankruptcy does not automatically save you from having to pay overdue credit card balances.

Within the past 10 years, the credit card industry lobbied hard for new legislation and won some powerful victories related to bankruptcy law. That was especially true in 2005 – when the latest big changes were instituted. Lawmakers took steps to encourage people to use Chapter 13 bankruptcy – which requires structured debt repayment –rather than Chapter 7 bankruptcy which dissolves debts without repayment.

Those who accept Chapter 13 are guided by a bankruptcy judge who figures out a plan for how much debt should be repaid and how fast, and the bankruptcy repayments are usually completed within 3-5 years. One benefit of Chapter 13 is that it lets the debtor keep personal property, rather than have it sold off to pay their obligations.

Chapter 7 bankruptcy, on the other hand, requires that most of a person’s property be auctioned off and that the proceeds go to help pay their outstanding debts. Once that is done, the balances owed to creditors are forgiven. For that reason many people used to use Chapter 7 to shelter them from credit card debt.

So people who did not own much valuable property, for example, would often run up huge credit card balances through cash advances. Then they would declare bankruptcy to avoid having to pay them back – and come out ahead. But under the new laws credit card companies can argue that the money owed to them was obtained fraudulently by consumers who never intended to repay it.

Bankruptcy judges typically agree, and the consumer is left owing their full credit card debt even after undergoing Chapter 7 bankruptcy proceedings. Thanks to declaring bankruptcy their credit is ruined, their personal property has been auctioned off to the highest bidder, and they still owe a mountain of credit card debt.

An article by personal finance expert Gretchen Morgenson in The New York Times on Sunday (5/3/09) was titled, Students’ First Lesson: Beware Loans’ Fine Print. If you (or a relative) had, have or will have a student loan, you should read it.

It points out that “Disclosures on various lending practices differ vastly. For example, lenders do not disclose all fees charged in the servicing and collection of student loans, and loan contracts do not always include benefits that are promised in lender advertisements—like the possibility of a lower interest rate after graduation. Most troubling, some lenders ask students to sign promissory notes obliging them to pay off their loans before they are told what interest rates they will be charged.”

The article quoted the founder of Student Lending Analytics, who reviewed student loan applications and other documents and discovered that, “The range of interest rates on fixed-rate loans was wide—7 percent to 12 percent—and the largest lenders charged the highest rates.” The article further stated, “There are also differences in how lenders apply excess payments made by borrowers. Say a monthly loan payment is $200 but a borrower submits $400. Most lenders apply the extra amount to any late fees that have been charged, then to accrued interest, and finally to principal. But for its private loans, Sallie Mae applies excess money only to future payments, making it tougher for a borrower to pay down principal faster....With short-term interest rates in the cellar, the profits on (variable-rate) student loans are immense.”

Quoting the Project on Student Debt, the article noted: “The average graduate leaves college shouldering $21,900 in student loans. These loans cannot be charged by filing for personal bankruptcy.”

If you consistently pay only the minimum amount due on your credit card accounts, your balance is close to your credit limit, and your credit score is nothing to rave about, you’re wasting an awful lot of money on finance charges.

How much? Look on your statement to find the amount you paid in finance charges last year, or call the card issuer to find out.

But don’t envy those who can easily pay their credit card bills on time and in full each month, and have great credit. A new study by Fair Isaac Co., creator of the FICO score, shows that 11% of U.S. cardholders—22 million people—had their credit lines reduced or their accounts closed between May and October of 2008.

How come? Because they weren’t generating enough profit for the credit issuers!

They were paying little or nothing in finance charges and no penalty fees, and therefore were not the kind of customers that credit card issuers prefer.

So no matter how poorly or splendidly you manage credit, you’re at the mercy of the few who control the credit industry. Not only do they make the rules, they’re free to change them at any time—in their favor, of course!

Here’s an actual quote from a major bank’s credit card application: “The terms of your account, including the APRs, are subject to change. This means that the APRs for this offer are not guaranteed; APRs may change to higher APRs, fixed APRs may change to variable APRs, or variable APRs may change to fixed APRs. We reserve the right to change the terms (including the APRs) at any time for any reason, in addition to APR increases that may occur for failure to comply with the terms of your account.”

Also: “If an account is opened, you will receive a Cardmember Agreement with your card(s). By using the account or any card, you agree to the terms of the Cardmember Agreement....You authorize us to allocate your payments and credits in a way that is most favorable to us. For example, to apply your payments and credits to balances with lower APRs (such as promotional APRs) before balances with higher APRs.”

So you end up paying more. And unless you’re willing and able to pay cash for everything, there’s nothing you can do about it.

Don’t assume, just because you mailed your credit card payment at least five days before the due date (as recommended), that it will arrive at the payment- processing center on time and will also be credited on time. Maybe it will, but maybe it won’t.

It might be delayed somewhere in the vast U.S. Postal Service system, or accidentally chewed up in their machinery, or lost in the mail. After all, the USPS handled 202.7 billion pieces of mail last year, and you can’t expect every single piece to be delivered on time and intact.

Even if it was delivered to the credit card processing center, it might be stuck inside a mailbag when the bag was emptied. Or if it arrived on the due date, it could be that a clerk didn’t get around to posting your payment until after the cut-off time (e.g., 3 pm ET) and you’re socked with a $39 late-payment fee. Or you forgot to sign your check or post-dated it, so it won’t be credited at all.

Therefore, it’s a good idea to always make sure your payment has been credited, and credited on time. You should do this online, or by phoning the card issuer’s toll-free number, no later than the morning of the due date. If you discover that your payment has not been credited, pay it again (for free) online, or (for a $10 or $15 fee) pay it over the phone. Even if it costs you, it’s better than having a late payment on your record and being charged that exorbitant fee.

In regard to your credit card balance, the more you pay off each month, the more quickly you’ll reduce your debt and the more you’ll save on interest charges.

That’s obvious. But what isn’t so obvious is the amount of money it’s costing you, if you pay only the minimum due each month.

In the new book, J.K. Lasser’s Guide for Tough Times, which was written by Barbara Weltman because Lasser has been dead for decades, a well-known credit card reporting company is the source for this statistic: “If you pay only the $60 per month minimum on a $3,000 credit card balance, it would take eight years to eliminate (the balance) and cost you $2,780 in interest.” That’s a total payback of $5,780 on a $3,000 debt—or almost double.

“If you increase your monthly payment by $50”—paying $110 each month— “you’d wipe out the debt in three years and save $1,800 in interest charges.” That is, you’d pay back $3,960 instead of $5,780, and the interest would total $980.

Naturally, this assumes you don’t run up any new charges on your account— especially cash advances—and you’re not hit with any new fees or penalties.

And it’s another reason why it’s not a good idea to incur charges of thousands of dollars for an ocean cruise or some other luxury, since you may still be paying for it long after the memories fade away. (If you’d like to go cruising, save up for it.)

With companies of all sizes declaring bankruptcy and/or going out of business, the one exception seems to be the credit card issuers. They seem to be doing OK. And no wonder.

Even though interest rates in general have gone down dramatically, the interest charged by credit card issuers keeps going up, even for cardholders who always pay on time. And that’s not their only source of income. They collect transaction fees from all the merchants and banks that accept or process their cards.

But the card issuers are worried—and rightfully so—about the ever-increasing number of delinquencies and charge-offs. As of last December, 5.6% of credit card accounts were 30 days or more late, the highest since 1991 (when the Federal Reserve started keeping track). Charge-offs, at 6.3%, are at their highest in seven years.

So, once again, many card issuers are raising fees or adding new ones.

As reported in USA Today (on 3/16/09), “Wells Fargo has increased late fees and cash-advance fees. Chase has put a $120 yearly fee on some cards with low interest rates. And American Express raised its late fee for some business cards.”

Also, “In January, Chase imposed a $10-a-month fee on roughly 400,000 borrowers it says carried a large balance for more than two years and made little progress paying it off. Their minimum payments were raised to 5% of the balance from 2%.”

Therefore, if each of those 400,000 borrowers now pays $120 a year more, that’s an additional $48 million Chase collects every 12 months.

Suggestion: Read the fine print on your statements and notices, and do everything you can to avoid the extra fees.

Hotels, motels, car rental companies and even many gas stations want to make sure there's enough available credit on your credit card by the time you complete your business with them.

So when you check into a hotel or motel, rent a car or start pumping gas, they automatically put a "block" (or "hold") on your account. The dollar amount depends on the typical amount for that type of transaction. For example, if you're buying gas at $2 a gallon, and most gas tanks hold a maximum of 20 gallons, the block may be for $40. The block is removed when you finish pumping gas.

It's a different story with hotels and motels. If, for example, your room costs $125 a night and you're staying four nights, that's a total of $500. During your stay, you may add on other charges-for restaurant meals, drinks, room service, telephone calls, etc. So the block can be several hundred dollars higher.

When you rent a car, the size of the block is based on the daily rental fee, number of days, insurance and various add-ons.
These blocks can remain for up to two weeks-especially if you use one credit card when you begin the transaction and a different card when you complete it. That's because the first card issuer isn't notified that you paid with a different card.
Since you may be unable to charge anything else while your credit card is blocked, carry and use an additional card or two when on a trip.

Keep Track

My cousin has three credit cards, with a $500 limit on each. Usually, he told me, he's within $50 of that limit on all three cards.
So to avoid going over the limit, he calls each card issuer's toll-free number every couple of days, finds out the latest balance and available credit, and jots down the figures in a little notebook he carries in his shirt pocket.

Then, when he needs to use a credit card, he looks to see which card has the most available credit and uses that card. Then he subtracts the amount charged from the available credit and increases the balance accordingly. This technique has worked well for him for quite a while-until last month. One day he called a credit card issuer to find out the balance on one of his cards, and to his horror discovered that, for some reason, he was over the limit...by 55¢. Even worse, they had charged him an over-the-limit fee of $39! For a 55¢ infraction!

He promptly redialed the toll-free number and listened carefully to the recorded message, to find out which key to press to talk with a representative. It wasn't easy. There were keys to press for everything but that. Finally, by pressing every key on the phone, one at a time, he got to talk to a rep who was, as many are, in India. (Others are usually in the Philippines, and a few-for some reason-are in Argentina.)

The rep listened to his tale of woe and, after checking his payment record, agreed to cancel the fee "as a one-time courtesy to a good customer." He also advised him to maintain a lower balance to avoid going over the limit again.