Every year more and more Americans wake up one day to find that their financial position is becoming impossible to handle. The tell tale sign of a major problem on the horizon is when they open their credit card statement and are surprised by a late penalty.

Once this begins to snowball out of control your personal ocean of debt becomes filled with the, Pirates of the Banking System, the debt collectors!

This industry has evolved into a ruthless, obnoxious and down right nasty business, especially for the majority of the recent companies that spring up like dandelion weeds on a beautiful lawn.

As anyone can tell you who has been in this situation it is not very pleasant, such as embarrassing calls to your neighbors and relatives from debt collectors is enough to make most people not sleep at night. So, if you feel like these Pirates are trying to make you walk the plank read on, you will become enlightened to some of their tactics and discover ways to beat them at their own game.

First you must be able to recognize who the Pirates are; names like NCO, OSI, LVNV, ARROW, SHERMAN and COLLECT AMERICA are the most common companies that have been grabbing the booty for a long time. Collectors like these slither around like an octopus in the sea, these large companies create tentacles of smaller companies owned by them just to be able to continue harassing consumers without losing the grip on their claim to your money.

Another type of Pirate on-board is the Law Firm, a huge percentage of these collection companies are basically, “rent a lawyer.” This is a common practice where a lawyer allows a collections company to use the attorneys letterhead to intimidate consumers into the mentality that they are about to be sued. A common illegal tactic used by slime collectors is to contact a consumer and pose as a lawyer this is a felony. For the most part the lawyer on the letterhead is nothing more than a money grabber and would sell his soul to the devil if the price was right. By simply Googling the lawyer on the letterhead or the phone number will usually give you a ton of information to whether the lawyer is a bottom feeder or a legit firm.

Now you need to understand some of the tactics when it is concerning receiving phone calls.

TACTIC: The first thing you must realize is that collection agencies have limited resources when it comes to phone calls. The shortage of people to make calls means that most companies resort to a tactic that utilizes automatic dialing machines. The advantage for them is that it gives the naive consumer the appearance that an individual person has been trying to reach them 20 times a day. This method works well because the unsuspecting consumer will get mad and pick up the phone to argue with the collector. Once you pick up the phone it is routed to the person that you spoke with in the past. So from your perspective it seems as if there is one person on the other end of the phone with just you in sight and mind who’s out to get you.

TIP: If you are receiving calls from a number you do not recognize frequently here is a simply solution to find out if it is a collector. To tell if it is a collector when you pick up the phone do not say anything not a word, when you say hello it triggers the dialing system through voice recognition and then gets routed to a collector to pick up. So the next time you receive a call, pick up the phone and be silent, it usually takes about 15-20 seconds to pass by of silence before the phone will either disconnect or someone will pick up and start saying hello a bunch of times, if they answer just hang up they will assume it was the answering machine.

Now you need to understand some of the tactics when it is concerning making phone calls.

If you feel that you must speak to the collector and you are going to call them back take heed.

TACTIC: You know that when you are arrested and police officer reads your Miranda Rights and says that “anything you say can and will be used against you in the court of law.” So obviously it would be smart not to continue talking to the police because what you say could potentially harm you. Well the same principle applies when dealing with debt collectors. No matter how friendly and caring they may sound it is just a ploy to befriend you. They will probe you for as much personal and financial information they can get from you as possible. The longer you stay on the phone speaking with them and giving them information the greater chance they have of collecting debt from you. They are all aware that the odds are in their favor the longer you are on the phone. All of the information they extract from you is kept on file and in most cases is the determining factor if they decide to bring you to court.

TIP: Before calling back a collector dial *67 first then dial the number, most phone companies provide this services which blocks your outgoing phone number to be viewed by the collector. By doing this procedure first and before identifying yourself to the collector if the call turns out nasty and the collector becomes abusive then you can just hang up. If you must talk to them keep it brief and do not let their abusive, demeaning and offensive language get you worked up they are just trying to get you to jump in their boat and that’s a sinking ship. Do not explain to them anything about a job or even if you have one this can be used against you if you refuse their deal.

Beware of Pirates bearing gifts!

TACTIC: After a long hard day at sea harassing, plundering and reeking havoc on its victims these Pirates, the collectors, need to eat too so they resort to fishing. Collectors have a large array of tactics that they use to collect debt, especially older debt. One very slick tactic they use when fishing is a using a type of bait known as “token payments,” most people are completely oblivious to this bait and switch tactic. To show good intent and in hopes of keeping the collector off their back they will end up paying less than $50 just to satisfy the collector and get them off the phone. This will only reset the game clock and give the collectors another 3 to 6 years to keep trying to collect the debt and possibly sue the debtor.

TIP: You see every state has its own Statue of Limitations on collecting debts, two thirds of all the States is less than five years from the time you made your last payment, many States, (14) are only 3 years. This means that after the SOL period has expired on your debt if they attempt to take you to court you can request a dismissal because it’s past the SOL. However as little as a $10 payment can reset the clock on the Statue of Limitations, so when they tell you that by sending them whatever you can to show “good faith”, it is nothing but a pile of you know what.

The bottom line everyone wants to know is, will I be sued!

No one knows for sure what all the factors are that go into whether the collectors will sue you or not. This is private information that they will not give up to the general public. You can however put yourself at a higher risk by speaking with them. Take into mind that everything you say to them they record and take notes on. So you might naively give them the information they are looking for to help them determine to sue or not.

For example, telling them that you do not make enough money at your job. Now they know that you work and can possibly garnish your wages if they decide to sue. Or say you tell them that after you make your auto and mortgage payments each month you simply do not have the money to keep up with your other debts. Well now they know you own a home and car and potentially might have more assets they can look to go after in court. So the best advice is to not speak to them at all if you don’t have money to settle your debt immediately.

If they are willing to work on a payment plan it usually has no consideration of your other bills, most people can not maintain their outrageous payment request. These people are not your friends and couldn’t care less about you all they want is your money.

Over the years I have heard numerous stories from people about their various experiences with debt collectors. I’ve heard everything from threats of jail time, which cannot happen, all the way to threats on ones family. So anyone who reads this post feel free to comment and share your experiences and tips on how you dealt with these people. I hope the information above will help some people from making a mistake when dealing with debt collectors.

Last night my wife and I were flipping channels and we came across the show True Life on MTV. The focus of the show was on three young women that were in debt and how they were handling their debt.

1 out of 3.
Of the three young women, only one of them seemed to have a realistic view on the hard work required to get out of debt. She had a mortgage of about $150,000 and approximately $20,000 in credit card debt. While she was struggling to earn enough money to make her payments, she was working and pursuing additional shifts at her job in an effort to earn more money.

While I would have liked to see her take the initiative to get another part-time job for the hours she was not working as a bartender, she was at least making the effort to increase her income in order to make progress on her debt. Throughout the episode, she indicated that she is living a relatively frugal life where she does not go out partying or spending money. Rather than eating out, she buys groceries and eats cheaply at home.

Are They Kidding?
The other two women really seemed like they were behaving like they just wanted to be featured on television, as I would really hope that people in their early 20’s do not have that distorted of a view on life and debt. Some of the comments made by these other two women really amazed me and made me want to reach through the television and smack them.

One of the women did not have a job and was looking through a pile of job postings when she commented that she did not want any of these jobs because it would take up all of her time. Where did this woman come from? It amazes me that someone would make a comment like this but when you look at her situation, maybe it is not all that amazing. She is living at home with her parents and her mom seems to help her with everything. Later in the episode, it was revealed that her parents were even making payments on her debt. With this type of support, she has little motivation to make her life better on her own.

Bankruptcy.
The third woman was also living at home and did not seem to have a serious mindset to eliminating her debt. It was revealed that she had been meeting with a bankruptcy attorney and was planning to file for bankruptcy. At a cost of $1800-1900 for the bankruptcy, she was paying approximately 10% of her outstanding debt to be free of her obligations.

As part of the bankruptcy, she had to meet with a credit counselor who explained that bankruptcy was not her only option. Based on her income, which I believe was about $900 per month, he explained that they could get her a debt repayment plan where she would pay a little over $400 per month to her debt. The duration of the plan was for 41 months and it would leave her approximately $300 to live on each month.

In my opinion, this seemed like the logical solution as she would be able to repay her obligations and still have money to cover her expenses on a monthly basis. However, it really did not come as much of a surprise when she still opted to pursue the bankruptcy. After all, she was shown receiving a check from her last job earlier in the show for a little over $200.

Rather than cash the check at her bank, she cashed it at a payday loan establishment to avoid the bank holding the money and covering any fees out of the deposited cash. Immediately after cashing the check, she went to the tanning salon and upgraded her service and then went shopping and spent more money on clothes. Well, it is no surprise that she is in debt when she spends her money as soon as it hits her hands.

Moment of Disgust.
After she completed her bankruptcy proceedings, this woman was shown at a restaurant with friends and she actually seemed proud that she was able to discard all of her financial obligations. It seemed like a big joke to this woman and she was already out spending money with friends, rather than learning how to properly manage her money.

This behavior was really disgusting to me as I feel that bankruptcy should only be an option in extremely dire circumstances. This woman used bankruptcy to avoid 3-4 years of hard work to repay the debts that she incurred. She was not willing to make the necessary sacrifices required to eliminate her debt. Unfortunately, I would guess that the probability of her ending up right back in debt is rather high.

Education Required.
Watching this show really made me feel like I want to change my career to be in a position to try and educate the American youth on the dangers of credit card debt and how to be responsible with your money. Right now that is what I am trying to provide with this blog, as I hope to use this as a vehicle to share some of the financial tips and habits that I have learned over the years.

Of the three women featured in this episode, I was happy to see that the one woman seemed to be making progress on her debt and was following a path that would lead her to success. It is unfortunate to see the other two *adults* with their lack of motivation or self-respect to do the work required to fix their mistakes, which will likely mean that they continue this pattern for many more years to come.

No big deal, right? Not quite. Unfortunately, at the time I didn’t realize it and thought everything was just fine. After all, I had a good paying job for being right out of school and received a $5,000 per year increase after 3 months on the job. Things were good and I kept telling myself that everyone carries a little debt, it was no big deal.

Digging Deeper in Debt.
It didn’t take long and I began to realize that my level of debt was hovering around the same amount or even increasing slightly. Still, I kept telling myself that things were fine and I could pay off the debt whenever I decided to do it. As I am sure you can imagine, that is not a recipe for success. As the months went by, I continued to spend a little and then pay off a little, only to spend a little more. Similar to the yo-yo diet, I was on the yo-yo credit card balance. Unfortunately, much like the yo-yo diet, when I would spend again I always seemed to spend a little more than the last time.

Facing the Truth.
After continuing to work my tail off and receiving a few additional raises, I began to question why I always felt like I was struggling to make ends meet even though I was making decent money. All this time I was lying to myself and living above my means, which was only making my debt levels increase.

Sure I always told myself that I would start paying more towards the credit cards and would put together a plan to eliminate my debt. One or two months would go by and then I would let those plans fall to the side and resume my bad habits. It wasn’t until I stopped lying to myself and admitted that I was in debt and needed to do something about it that I had finally turned the corner.

Power of a Snowball.
On January 11th, 2002 I discovered the snowball spreadsheet that would forever change my life. In all reality, it wasn’t so much the snowball spreadsheet but the fact that I had come to terms with the fact that I was in debt and calculated up the true damage. Once I saw the numbers staring me back in the face, I felt embarrassed and ashamed that I had let it get that bad. But I also felt a new sense of power and determination to eliminate that debt.

$25,237.19 was the number staring back at me. That total included the credit cards and the remainder of my car loan, but did not include my student loans. As scary as that number was at the time, actually seeing it in front of me was the hard slap of reality that I had been hiding from for years. But now I had the knowledge and plan to begin my journey towards being debt free.

Working the Plan.
Armed with a detailed plan courtesy of the snowball spreadsheet, I began to attack my debt with fervor. At the time, I also had the good fortune of landing a very lucrative job and that certainly helped expedite my plans. On that cold day in January, I had finally stopped lying to myself and took the time to honestly assess my situation. The process of creating my debt elimination plan was like making a binding contract with myself, I vowed to change my ways and eliminate my debt.

Moving forward a little more than 5 years, I am proud to say that I no longer pay any interest to the credit card companies. On the contrary, I am using the credit cards and their 0% balance transfer offers to make money.

So what are you waiting for? You owe it to yourself to stop playing games and be honest with yourself!

If you’ve been battling with your debt for some time now and you don’t feel like you are making any progress, you may be tempted to turn towards a credit counselor for assistance. However, before you rush off to meet with the nearest credit counselor, you should take the time to do a little research to avoid potential problems.

As you conduct your due diligence on the credit counselors in your area, consider the following tips to help make the process as painless as possible:

Call Your Creditors Directly.
That’s right, the first step in the process should really be to call each of your creditors directly and discuss your options. Rather than rely on the promises of some unknown credit counselor, you may find that your creditors are more than willing to establish a payment plan or some other form of repayment that will work for everyone. You might be thinking that your creditors will not be willing to work with you but sometimes all you have to do is ask.

Upfront Fees Are Red Flags.
You’ve called your creditors and still feel the credit counselor is your best option. Okay, just be wary of any credit counselor that is charging you upfront fees. In most cases, upfront fees are a sign that you are not dealing with a nonprofit credit counselor that is going to create a plan with your best interests in mind.

Focus Should Be On You.
If you are dealing with a legitimate credit counselor, they should be taking some time to gain an understanding of your whole financial picture and will likely offer an education in the process. The shady credit counselors will typically try to rush right into their debt consolidation plan without taking the time to look at your situation. Again, this is a clear sign that the credit counselor is looking at their bottom line and is not focused on helping you.

Check Their Credentials.
Before committing to anything, you should check the Better Business Bureau and your state’s consumer affairs department to get a background on the company. It will be much better for you if you learn of any complaints or problems with the company before you commit to any plans. In addition, do not be afraid to ask the counselors themselves about their education and training. After all, you are putting a lot of faith into these people so you want to know they are trained to do the job correctly.

These few tips can go a long way towards making your experience with a credit counselor much more satisfying. Often times, when you rush into a decision due to stress and despair, you will only be compounding the problem. Be sure to take a step back and evaluate whether you are making a sound decision.

IMO, credit counselors should be a last resort as I truly believe just about anyone can dig themselves out of their debt situation. While there are certainly exceptions, in most cases it comes down to the fact that people are not willing to make the difficult sacrifices that are often required. But for those that do turn to credit counselors, it is vital to be sure you are dealing with a legitimate company.

As I mentioned in my post about a possible site redesign, sometimes I just need a new little project to energize me and get me back into the swing of things. Well, I just finished my first pass at such a project and you can see the results in the top-right corner of the main page.

That’s right, I wrote a little Google Gadget that retrieves the current national debt and updates daily. Given that this blog is about eliminating debt, I thought it was appropriate to keep an eye on the debt levels for the entire country. It seemed there was already a Gadget for this functionality but it wasn’t working and I thought this would be a great introduction to Google Gadgets.

Please let me know what you think and you can add the Gadget to your own personalized Google page by clicking the Add to Google button. If you would prefer to add this Gadget directly to your own page, send me a note and I will explain how you can do that on your site as well.

Here are a few of my favorite articles from the 60th CoDR:

• BinaryDollar discusses 3 reasons to pay student loans slowly. This is similar to the approach that I took as I was in no hurry to pay off my student loans, although I did still end up paying them off entirely a little earlier than scheduled.

• Do you find yourself struggling to save? Don’t think you have enough to save each month? Try the singles way to save and you might just surprise yourself.

• Universe of Success has an article talking about the power of the mind, you are what you think, mind over matter, insert cliche here. It is amazing to see the results one can achieve when you think positively and visualize the results and achievements that you desire.

Enjoy this latest Carnival!

Reduce Monthly Expenses.

One component to eliminating debt is the amount of your overall monthly expenditures. If you can find ways to reduce your monthly expenses, that will result in more money being available to pay towards debt that month. However, expenses can usually be reduced by only so much, although that amount is typically much more than many people are willing to accept.

Increase Your Income.

Increasing your income can vary from something like an additional part-time job in the evenings, selling old items on eBay or other related sites, or trying to find yourself a better paying job.

As I am sure you can imagine, some options are less feasible for some people and more feasible for others. It might not be the easiest task to squeeze in an additional part-time job, as family needs may outweigh the additional income that can be earned. Selling items online can be quite lucrative and usually can be done in your free time, we all have too much of that, right?

Finding a better paying job might be the easiest way to increase your income. While this certainly isn’t an option for everyone, changing jobs is often the quickest means of increasing your income as new jobs are typically not a lateral move. It can be scary to change jobs, no doubt, but you owe it to yourself to at least do some market research on current salaries and see how your salary compares.

So what will it be for you, reduce your monthly expenses or increase your monthly income? Or better yet, how about both?

• Spend less than you earn.  While it seems so simple, there are many people that do not follow this tip.

• Pay your bills on time.  Even in the days when I struggled with debt, I followed this one rule and it resulted in always having a respectable credit score and not getting swamped with fees.

• Be patient.  As I have discussed with ways to curb impulse buying, the ability to practice delayed gratification can really save a considerable amount of money.

• Negotiate fees.  I’ve written a few times about the power of a phone call, whether it be saving $138 in ten minutes or reducing the interest rates on your credit cards.  This tip can have very positive results.

• Recheck your withholding every year.  Awhile back, I wrote about earning an extra $200 per month simply by adjusting your withholding to reduce the size of the average tax refund.  Put the money where it belongs, in your pocket.

There are many other tips in the article that have the potential to save you a considerable amount of money.  Take some time to read through the tips and see where you can save some money or improve your situation.

There are some nice posts this week, including:

• Money Under 30 writes about Two Radical Ways to Spend Less: Giving up TV is a really good idea as it can save a considerable amount of money and open the door to so many other rewarding activities. (But I am a sports nut and am not about to give up TV just yet, but could if I need to reduce costs.)

• Worldwide Success writes about How Much Should You Save?: Provides some very nice ideas with a sample budget for a family of four and some potential budget tweaks to provide a boost to your savings.

• Christine Kane writes about Don’t GET Rich Quick. BE Rich Quick: Some very interesting points that provide some perspective on how to appreciate the richness we already have in our lives. One of my favorite points is Be Silent, as I will often drive in complete silence to/from work or just sit in the evening with no distractions and enjoy the moment.

Hope you enjoy the rest of the articles in the current carnival, as there are some good ones this week.

2. Pay your bills on time.

In my opinion, paying your bills on time is essential to maintaining a good credit score even while you are struggling with debt. When I was struggling with debt shortly after graduating college, my credit score was always quite high and one of the main reasons was that I always paid at least the minimum payment on time.

Let me know if you have any other tips for improving your credit score or have had your own personal experience with how these ideas have worked for you and your credit score.