Ripoff Alert #9 – Credit Repair Edition

The Ripoff Alert is a new series appearing once each week on Fridays. It alerts you to the latest scams and ripoffs trying to get between you and your money, and gives you information you need to stay safe.

Credit Repair

It seems like every time I watch late night TV, the ads for these outfits appear in droves.

You’ve heard the pitch: In exchange for a fee, they promise to remove the black marks from your credit report.

There are several variations: “We can raise your score 200 points in just weeks!” or “We can settle your credit card debt for pennies on the dollar!” There’s also the one about reducing the amount you owe to the IRS.

There are hundreds of organizations making promises like this, but they all have one thing in common: They’re just trying to rip you off.

The Federal Trade Commission is actively trying to shut down these criminals. But their efforts are mostly in vain because as soon as one is taken down another one pops up to replace it.

The truth is, repairing your credit takes time. Not weeks, but months and often years depending on what you have going on.

Don’t be fooled by these scam artists who try to get you to believe your credit can be repaired in the snap of a finger.

Here are three things you can do yourself to raise your credit score:

1. Pay every bill on time (35% of your score)

2. Don’t use more than 30% of your available credit (30% of your score)

3. Keep accounts open after you’ve paid them off (15% of your score)

Consistently doing these things will start improving your score in as little as 6 months.

Bonus tip: Use Credit Karma to watch your progress and monitor your credit score as often as once a day.

How the Crisis in Europe Affects Your Wallet

Europe is in crisis mode, and nobody seems to care.

Several countries have borrowed and spent much more than they’re able to pay back. Central among them in Greece, which is in danger of pulling out of Europe’s common currency, the Euro.

Greece badly needs a bailout, but European leaders sharply disagree about the best path forward. On one side is Germany, Europe’s bankroller, who swears by the austerity measures they’ve implemented in their own country since the recession began 5 years ago. On the other side is a growing number of leaders from other countries, who believe it’s time for a different solution to the region’s troubles.

But why does this matter to us here in North America? Aren’t they across the big pond, thousands of miles away?

Here’s something you may not have considered. Europe accounts for 21% of all US exports, according to the Office of the US Trade Representative. That means over one fifth of all goods and services produced in this country are purchased by someone in Europe. If European countries and citizens are faced with austerity, do you think they’ll continue to purchase at the same pace as they always have?

A slowdown in Europe directly affects our economic situation here. With Europe buying less, companies have less need for labor, so they don’t require as many employees. Up goes our unemployment rate. Investors lose confidence that Europe will be able to cover their obligations, so stocks move lower. Down goes your 401(k) balance.

All of this causes us to consume less here, which slows down economic activity, prolongs the recession and gives companies even less incentive to hire new employees.

Another interesting trend is that policymakers have become the primary market influencers. Investors are now reacting to their perceptions of policy changes rather than economic data like retail sales and corporate profits. Because governments around the world have intervened to such an extent in the financial markets, the economy is now more dependent than ever on elected officials.

If you weren’t aware of how intertwined the global economy is, you should be now. As nice as it might be, you can’t control what goes on in other countries. Heck, we can’t even control what happens in our own country. But there are some things you can do in your own life to help you ride out these difficult and uncertain times.

Reduce the amount of debt you carry. Debt is a chainsaw to your finances. It cripples your financial health, giving your little margin for error. It requires a portion of your resources every month and gives you nothing in return. It adds pressure to meet obligations and stress and heartache when you come up short. Do everything you can to eliminate the amount of debt in your life.

Build an emergency fund. I’ve written about this several times on this blog. You need a pile of cash (preferably not stashed in the freezer) that you can rely on in a pinch. Start with $1,000 in an online savings account. Then build it to one month of living expenses, then two months and so on. This is your insulation against the bumps in life.

Watch your spending. You can make a budget, track every penny that you spend, or even put your credit cards in a block of ice. Whatever works for you. The point is to think about each purchase and how it makes your life better.

Save for your future. If your employer offers a 401(k) with a match, you have no excuses about why you’re not participating. Contribute up to the match and put the rest into a Roth IRA. Even with the markets on a roller coaster, your best chance of beating inflation is a diversified, low-cost portfolio of stocks and bonds. My favorite are the target-date funds. If you’re not sure how much you should be saving, see this post.

Who knows what will happen in Europe. But one thing is certain – it’s time to get back to basics. Following these tips helps you insulate your finances from the drama that’s playing out in Europe.

Are you worried about the crisis in Europe? What are you doing to protect your finances?

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Ripoff Alert #8 – Car Spotting Edition

The Ripoff Alert is a new series appearing once each week on Fridays. It alerts you to the latest scams and ripoffs trying to get between you and your money, and gives you information you need to stay safe.

Car Spotting

What a despicable, slimy practice used by some of the nation’s car dealerships.

You’re at the new car dealership, test driving a few cars and weighing the pros and cons of each one. You make your decision and the negotiation begins. After a few rounds of the “grind,” as they call it in the industry, you settle on a price. Now it’s time to fill out the financing paperwork.

Does this sound familiar? If so, you’re among the 80% of Americans who finance their new vehicles at the dealership. “What’s wrong with this?” you ask. “Dealerships are one-stop shops for my car-buying needs.” Well, I’m about to tell you why the number one rule of car buying is to arrange your financing before you enter the dealership.

As part of their pitch, car salesmen love to tout the “ultra-low rates” they can get you for a car loan, “this week only!” They promise you unbelievable rates, and allow you to drive off in your new car with almost no money down. You leave thinking what a steal it was to get a new car so cheap.

A week or two later, you get a phone call from the dealer saying the financing didn’t go through. They need you to come back in to discuss more financing options. When you get there, they say that while your 0.9% loan didn’t go through, they can get you one for 8.9%!

Now, after having shown off the car to all your friends and family, who’s going to give the car back to the dealer? That’s embarrassing.

The problem is dealerships have no idea up front whether your loan will actually go through. The interest rate they quote you in the deal is at best their educated guess of an appropriate rate for your credit risk profile, and at worst a deceitful, unrealistic ploy to get you to buy a car.

There’s a clause in your contract that states the deal is subject to financing. A common misconception is that once the papers are signed it’s a done deal. Confronted with this situation, you could always hand back the keys and tell them to have a nice day. But you’re still responsible for the depreciation from mileage put on the car. This could easily be hundreds or thousands of dollars. And if you traded in your old car or made a hefty down payment, the situation can get complicated very quickly.

This scam most often targets people with below-average credit, who believe they’re at the mercy of the dealership for financing. Regardless of your credit score, the best option for financing a new vehicle is through a credit union or small community bank.

Buying a new car should be a fun experience. Arranging your financing in advance helps the process go smoothly and steers you clear of this common scam.

Starting Out

On my way to work recently I was listening to NPR as I often do. Because there’s so much bad news being reported in the media on a typical day it can get a little depressing. So anytime I hear an inspirational story it lifts my spirits.

As part of its Family Matters series, NPR interviewed Nicholas McDonald, a 24-year old in Capitol Heights, Maryland. Here’s a link to the interview.

Nicholas told his story about being part of a multi-generational family living under one roof. He explained that he had a rough childhood and that he didn’t have many good influences growing up. Now, unemployed and in his mid-twenties, he is feeling pressure from his step dad to find a job.

Nicholas’s story is one that is playing out in the lives of an increasing number of Americans. Because of the recession and the difficult job market, many college grads are moving back in with their parents. Even with a full-time job, young grads are finding their student loan burden is too much to handle without support from parents. They may feel hopeless because of what they hear in the media. Or overwhelmed because they have no idea what they want to do. Or pressured by the expectations of family and friends.

The first thing you should do is realize that you’re not alone. There are literally millions of young Americans going through the same thing. At 26, I still don’t know exactly what I want to do when I grow up.

Second, eliminate the negative people from your life. These people thrive telling you that you can’t do what you want. Surround yourself instead with people who will support you and lift you up.

Third, don’t feel guilty for wanting to take a little time off. After graduating from college, I took a year off to live in Europe and pursue my love of traveling. I heard from so many people who said to travel while you’re young, because before you know it you’ll be 30 and stuck in the office. Backpacking through a foreign land might be just what you need.

Fourth, don’t lose hope. You have skills and qualities that nobody else in the world has. Sometimes all you need is that last bit of effort to reach your goal. I’m reminded of one of my favorite quotes by American writer Elbert Hubbard:

A little more persistence, a little more effort, and what seemed hopeless failure may turn to glorious success. There is no failure except in no longer trying. There is no defeat except from within, no really insurmountable barrier save our own inherent weakness of purpose.

Often, we’re all that stands in our way.

Finally, when you reach your goals and find success, sincerely thank those who helped you get there. These are your true friends who won’t count the costs when you need help.

As for Nicholas, he explains that as long as he’s contributing financially to his family he’d be okay still living there at 30. That may or may not be the case for you. But his example shows that by knowing what’s important to you and keeping a positive attitude, you’re likely find success.

Ripoff Alert #7 – Acting and Modeling Edition

The Ripoff Alert is a new series appearing once each week on Fridays. It alerts you to the latest scams and ripoffs trying to get between you and your money, and gives you information you need to stay safe.

Acting and Modeling Scams

“Your child is just so beautiful! She has such great potential! We just know that she’ll make it in this business.”

“All we need from you is $500 for an agency fee, and we’ll get her hooked up with some of the best-known modeling agencies. Just sign here.”

Have you taken your child to a modeling or acting event and heard something like this? Unfortunately in these two industries, there are many more scam artists than legitimate players.

These traveling scamsters come to your town, set up shop in a hotel ballroom, and stage a selection process where they ask some kids to stay and send others away. To those who remain, they lie by claiming they have the connections to make your child a star. They then ask for an upfront fee for an evaluation, photographs and other expenses. It’s pretty easy to get caught up in the hype, because this is what your child wants. You just want to make him or her happy, right?

If your child is into acting or modeling, there are better options than attending one of these ripoff sideshows. For acting, the best option is to sign up for a class at your local theater group. Your child may be able to take an acting class, learn special tips and instruction from experienced actors, or even take part in a play. For parents, the people you meet here can be valuable connections when it comes to advancing your child’s acting career.

For modeling, call up photographers and ad agencies in your area to see which agents they use.  When meeting with an agent, ask to see some head shots and composite sheets of models they represent. Also, only agree to meet at his or her office during business hours.

The key to not getting taken by acting and modeling scams is to avoid paying any upfront fees. Legitimate agencies earn their money by taking a cut of jobs they obtain for the actors and models they represent.  The only money you should spend is for photographs of your child.

Also, beware of any absurd promises made to you. As I mentioned in the beginning, scamsters attempt to pull at your heart strings by telling you what a beautiful, well-behaved child you have. The modeling and acting businesses are traditionally very difficult to break into, and no legitimate agent will puff you up like that.

Finally, before doing business with any agent, check with the Better Business Bureau to see if there are any complaints against the agency.

Avoiding Lifestyle Inflation

Late last year my wife graduated from nursing school, and soon after we became a dual income family. This was certainly a blessing because it meant we could start repaying some of our student loans. But one of our biggest challenges lately has been avoiding the temptation to spend the extra paycheck.

This is something I considered even before my wife started working. We were accustomed to living off my income, so I wondered what it would feel like to have an extra paycheck every two weeks. I’ve always been pretty disciplined with money, but I wasn’t confident we would be able to avoid unnecessary spending.

When a family goes from earning one paycheck to two, one or both partners are often tempted to spend all the extra money. They might rationalize their behavior by saying that they deserve more after scrimping and saving for so long. This is known as lifestyle inflation, and is extremely hazardous to your financial health.

This past weekend I went to Costco for few things. I was strolling through the store as I often do, checking out the offerings, when I walked past some pillows. They looked really soft, so I walked up to touch them. “Yep, these would look great on our bed,” I said to myself. They might even help me sleep better. I did everything to convince myself that I needed these pillows, including telling myself that we could afford them now that we have extra money coming in.

In the end though, I walked away. Sure, I could have easily afforded them. The price was right too – $16 for two king size pillows. I thought about the pillows we currently have. Although they’re a year or two old, they work just fine. At this point they’re a want, not a need.

Recognizing the difference between wants and needs is a big step in avoiding lifestyle inflation. Just because you have extra income now doesn’t mean your list of needs has to expand.

What are some better things we could be doing with the extra income? Here’s where our focus is:

1. Paying off student loans. This is where the majority of my wife’s paycheck goes. Watching the balance fall month by month is very satisfying.

2. Increase our giving. We feel that it’s important to give to those who are less fortunate than we are. Even though we aren’t bringing in tons of money, the extra paycheck allows us to be more generous.

I heard a quote once that’s always stuck with me: God increases our means not that we may increase our standard of living, but that we may increase our standard of giving.

3. Start saving for retirement. Before my wife started working she had zero retirement savings. We’ve since opened up a Roth IRA for her and contribute a little from each paycheck. When she becomes eligible to contribute to her 401(k) at work we’ll start contributing to that as well.

Extra money might come into your life from ways other than an additional paycheck – it might come through an inheritance, a raise, or from reducing expenses. Whatever the source, don’t squander it by buying things you don’t need. Instead, consider your goals and the needs of your family, and ask yourself how you might use it to better your life and the lives of those around you.

What are your tips for avoiding lifestyle inflation?

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Ripoff Alert #6 – Pet Adoption Edition

The Ripoff Alert is a new series appearing once each week on Fridays. It alerts you to the latest scams and ripoffs trying to get between you and your money, and gives you information you need to stay safe.

Pet Adoption Scams

Pets are considered by many to be part of the family. In fact, many people treat their pets like they would a child. The emotional connections we’ve developed with our pets enrich our lives and provide many benefits. But they also make us vulnerable to a number of pet adoption scams when it’s time to look for a new pet or give up one you already own.

Most pet scams fall into one of three categories:  the Nigerian pet scam, over-payment and sales that involve sick or dying animals. I’ll talk about each one individually and how you can protect yourself.

The Nigerian pet scam

When looking to buy a pet, many people go online to places like Craigslist or search engines. Scamsters, usually operating overseas, post ads with detailed descriptions and even pictures of common breeds such as Yorkshire Terriers and bulldogs. They tell you a story about why the pet is free or discounted – they’re doing missionary work in Nigeria or some other African country, they don’t have time to care for the pet anymore, the animal was rescued from a natural disaster, yada yada yada.

When you contact the seller (scamster) for more information, he’ll answer your emails and phone calls. He’ll send you all the pictures you ask for. Some set up legitimate-looking breeding websites claiming to have AKC (American Kennel Club) certification. After all your questions are answered, the seller tells you to wire the shipping fees (usually from $150-$500), vaccination costs and various other fees. Wanting to get your new pet as soon as possible, you’ll go down to Western Union and wire the funds to the seller. They’ll then make up reasons for delays and try to get you to send more money. Once you’ve figured out their scheme, that’s the last you hear from the seller or your money.

There is no pet, the pictures are taken from the internet and the seller is not a missionary. Avoid falling in love with a pet from just a picture. You need to see and interact with it in person before making any decisions.

Over-payment Scam

This occurs when you’ve posted an ad offering your pet for sale and are contacted by an interested buyer. The price is negotiated, terms are agreed on, and the buyer sends you a check for more than the agreed-upon amount. You’re then instructed to deposit the check and wire a portion back to the buyer or a third party. Not knowing the check is fraudulent, you obey and it clears. A few weeks later it bounces back, but by that point you’ve already wired a portion to the scamster. Always be suspicious if you receive payment in excess of the correct amount. And absolutely don’t send your pet because you won’t see it again.

Sick or Dying Animals

This scam occurs at pet stores and in-person with private sellers. As you’re interacting with your potential new pet, you might notice the animal behaving a little strangely, but you don’t think much of it. So you pay the adoption fees and you’re on the way home with your new pet. A few days later after a visit to the vet, you find out it has worms, rabies, or some other serious medical condition which the seller failed to mention. Now, who’s going to take an animal back to the seller after days or weeks of bonding with it?

Instead, take some time to get in touch with the breeder’s past customers, as well as veterinary references to see if the animal has been examined. Research the breed to see if it’s a good fit for your home and lifestyle.

A variation of this scam occurs after you’ve contacted an online seller who sends you pictures of a pet you’re interested in. After you’ve agreed and sent the money, the animal in the picture ends up not being the one you actually receive. The pictures could be of anyone’s pet – just because they have pictures doesn’t mean they have the pet.

Protecting Yourself

The #1 thing you can do to protect yourself from pet adoption scams is never buy a pet on the internet. It’s fine to use the internet to find a local breeder, but always visit the animal in person. Insist on spending time with the parent animals and see where they’re kept. Watch for signs of timidness or sickness. Remember, the animal will be part of your family for 10 or even 20 years, so it’s important to take the proper precautions when selecting one. Finally, if the seller focuses mostly on getting paid you know there’s something fishy going on.