Double Dipping Social Security – The Little Known Loophole

I interviewed Pam Villareal from the National Center for Policy Analysis (www.ncpa.org) about a recent white paper that they put together. It was about Social Security and the little known loophole. The basis of this loophole is that someone can start taking their Social Security payments at age 62 for the reduced amount. Then at age 70, they can reapply for the higher amount.

The couple would have to pay back the benefits that have been paid to them for those eight years. It is basically getting an interest-free loan. In the article, they give an example of a couple that is taking out a benefit at age 62 that totals $13,250 each. However, if they had waited until age 70, they could take out $20,693 a year. That is a pretty big jump.

So they take out the benefit at age 62 for the next eight years. Then they pay back that benefit and then get a $7,000 raise. If you didn’t need that benefit, you could have taken the money and put it in an interest bearing account, made money off of essentially an interest-free loan from the Government, and then started collecting a much higher benefit at age 70.

Keep in mind, there are a lot of assumptions being made and this isn’t for everyone. However, it might be a good deal if the assumptions fit.

For more information, go read Double-Dipping Social Security.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Politics are Working Against Some Very Good Credit Card Legislation

Regulators are finally doing something about the abusive practices of the credit card companies. The Federal Reserve Board has a proposed set of rules that should level the playing field and make things a little easier for the highly indebted consumer. These new regulations could go into effect by the end of the year.

Here are some of the proposed rules (a sampling):

- Prohibit credit card companies from raising interest rates on money already borrowed with the exception of variable rate cards, the ending of promotional periods, and the minimum payment being made more than 30 days late.
- Prohibit credit card companies from charging a late fee if the bill is mailed to the consumer less than 21 says before the due date (a trick used by the industry).
- Prohibit two-cycle billing (another trick credit card companies use that creates additional interest charged to the consumer).
- Prohibit credit card or overdraft fees where the fee itself creates the overdraft.

If you ask me, that is a good start for regulating the credit card industry. Unfortunately, due to the high probability of these new regulations going into force, there are reports that credit card companies have started to aggressively raise rates on credit balances for no good reason at all.

Of course, they can get away with this because of the universal default clause, which states that the credit card company can basically raise rates for any reason. Unfortunately, consumers sign off on this in most cases when they sign the dotted line of a credit application.

The clause was originally intended to protect the credit card company against the risk of a default. If the credit card company suspects that the consumer is getting in trouble due to late pays on other cards and the accumulation of too much debt, then they can raise the rate. Essentially, this would do away once and for all with the universal default clause.

This set of regulations is also good in that it gives the consumer a full 30 days in the event that a bill does not arrive on time. Unfortunately, life does happen and sometimes mistakes are made. A consumer should not be punished for an occasional mistake.

Ironically, the Office of the Comptroller of the Currency, who regulates and supervises all national banks, is urging the Federal Reserve Board to not be so harsh with these rules. In other words, they want the Federal Reserve Board to soften up regulations so that banks and credit card companies can continue abusive lending practices. They maintain “that restricting these unfair practices would hamper the ability of banks to offer credit to consumers.”

One of the regulations that they want changed as to do with the late payment period. Credit card companies have been making a fortune because of raising rates to penalty rates when a credit card payment is one day late. They want the 30-day window to be limited to 5 days.

So, here we go again with a prime example of why things don’t get done in Washington. This is politics as usual. You would think that the Office of the Comptroller of the Currency would encourage these new regulations since it is their job to regulate the banking system. Of course, if the Office of the Comptroller of the Currency would have been regulating the banking system in the first place, these abusive practices wouldn’t be taking place.

Another one of the agency’s objectives is to ensure fair and equal access to financial services for all Americans. It really does appear that yet another Washington agency is taking care of big business rather than looking out for the best interest of the American consumer.
Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Is Children and Identity Theft Overblown?

The identity theft stats show a large percentage increase. Identity theft solution companies are marketing that you need to protect your kids from identity theft through a monitoring service. Yes, it is true. Identity theft can occur with children. Yes, the statistics show a large percentage increase. However, the total number of cases of identity theft with children is low.

In addition, the vast majority of these cases involve a family member and/or someone close to the family. Most of the cases that are being reported occurred at a time when it was much easier to have your identity stolen. Although still possible today, it is a little tougher for that to occur.

Having said all of that, this doesn’t mean that we shouldn’t be pro-active as parents. In fact, it is a culture that we should all create within our families. So, here are some tips to make sure that your children don’t become part of the statistic.

1) Don’t give your child access to his or her Social Security number. Besides, what good is it for your children to have that information?
2) Don’t carry any Social Security numbers with you in your wallet, purse, phone, or PDA. I see this all the time. With clients, we need Social Security numbers for establishing accounts. I cannot tell you the number of times someone has just reached into their wallet and pulled out that information. If you lose your wallet, you will have major problems.
3) If asked for a Social Security number, make sure that the person or entity you are giving that information has a secure system. Also, be careful of the manner in which you give that information.
4) Always shred any personal information about your children.
5) Keep all personal information about your children in a secure place. Don’t leave papers lying around in the house.
6) Attempt to run a credit report at the end of each year. If something has occurred, it will show up. If the child is over the age of 13, you can get a free credit report through www.annualcreditreport.com.
7) Be suspicious if pre-approved credit offers start arriving in the mail. That might mean some credit activity has been occurring.

When monitoring your own credit reports, do as much as possible which includes credit monitoring. As for your kids, I have never felt it made sense to pay a company monthly fees for any type of identity theft monitoring for kids. In all cases, being aware and pro-active is always the key.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

The Category 5 Hurricane That Has Not Yet Hit

By the grace of God, we dodged a major bullet with Hurricane Gustav. It was great to see the country come together, to see the levies hold, and to see the Government pull off a successful massive evacuation. Unfortunately, there are still people who are negatively impacted by nature’s wrath and our hearts and prayers go out to those affected.

Anytime a massive hurricane builds in the Atlantic, the forecasters are pretty gloom and doom. Fortunately, we have continued to dodge major bullets. New Orleans under water would have been a major bullet. It makes you wonder, “At what point, do we face the big one? At what point are we not so fortunate?”

I feel the same way with the banking system. We see all of the ingredients for the Category 5 hurricane. We have thus far been able to dodge the big bullets. Yes, we have had some casualties (to name a few…Bear Sterns, Country Wide, and the list of banks that have not made it). However, we have been fortunate to avoid facing anything horrific.

We are right at the height of hurricane season. With two other major storm systems in the Atlantic, this has the potential to be a tough stretch. At the same time, we are also entering into a tough stretch for the stock market with all of the ingredients of a Category 5 hurricane.

The last four months of the year have the potential to be explosive one way or another. In bull markets, the last four months of the year have proven to be great investing opportunities. In bear markets, the last four months have proven to be problematic.

This should be an especially interesting four-month stretch. Let’s take a look at the dynamics going into the last four months.

- A barrel of oil has dropped -25% in about 1 ½ months. This is the bright spot as gas prices continue to fall. Ironically, politicians complain about the speculation effect driving up the price of oil. What about the manipulation effect of politics driving down the price of oil?
- Banks remain in crisis mode. Last week, the FDIC reported that their list of problem banks increased by 30% in the second quarter.
- Going into this Friday’s job report, we have had seven straight months of job losses. Call it what you want – with or without the official negative growth numbers, this is a recession.
- The S&P and the Dow Jones are down roughly -11% for the year.
- Most importantly, we have one of the most important and tightest elections in our history in November. We are also a nation that is extremely divided.
- We have what looks like 3 monster storm systems that have developed in the Atlantic. This looks to be an active hurricane season.
- We are locked firmly in a bear market.

What is my take? Although there remain many factors to be concerned about, my greatest concern is the banking system. Banks are having a tough time raising capital. Banks have billions of dollars of debt coming due in the final four months of the year. The ability for an economy to produce and supply credit to individuals and businesses is crucial for future development and growth.

Therein lies the problem. The credit markets are still in lock down mode. There has never been a greater need for credit. The only credit available comes with high interest rates. Thus far, we have been able to get by in this high risk situation. How long does that continue?

This is the financial storm that concerns me the most for those who are not prepared.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Was the Obama Nation Interview Appropriate?

Dear Bob,

I'm seriously confused with how Prudent Money shifts to political forum. To be honest, I was uncomfortable with how your program became a medium for political authors to use in fighting political rivals. Do you think it was appropriate to allow that? I may be wrong, but I think your good program is aimed something higher than partisan politics. I lot of my friends have reacted to what they think is wrong. I'm sure you'll understand what I'm trying to communicate.

I really appreciate your e-mail and your thoughts. For those of you that have followed me through the years, you know I have a dislike of the actions of those who play politics. Politics has a way of shading the truth. Just like politics, marketing can also shade the truth. It creates a reality that is more of an illusion than anything else.

When you combine marketing and politics, you have created a dangerous combination. I brought Dr. Corsi on the program and did the interview, not because I am making a political statement for or against anyone, but I brought Dr. Corsi on the program for two main reasons.

First, this is one of the most important elections of our generation. As a voter you need to read and see everything about these candidates in order to get some resemblance of the truth. This is also an election that could drastically affect your money. In the last election, only 68% of voters showed up to vote. Guess what, politics won. If we are ever going to start to get a voice in Washington and get politics under control, we have to get out and vote and politics ARE affecting our financial future.

Second, we need to vote for the right reasons. I believe that voting just for the sake of change is not a good reason. Both politicians want to change things. However, we need to get a good hard look at what they want to change. As Christians, we also need to be in sink with the politician that mostly reflects Christian values.

I have my concerns about both candidates. I think Senator Obama is a dynamic leader that could inspire America again. At the same time, I also wonder whether Senator Obama might not have enough experience for the job. I don’t think that Senator McCain is going to inspire this country for four years. At the same time, he has the experience.

We are in difficult times. As voters and as Christians, we have a responsibility to understand the facts and get as much information as we can. I realize that having Dr. Corsi on my program talking about a controversial book is not going to sit well with 100% of my audience. Then again, I would like to think that what I talk about each day doesn’t sit well with all of my audience. I want to challenge you to think and get beyond the marketing and the politics and see who we are looking at today for political office.

Included in Dr. Corsi’s book are statements of fact and quotes from Senator Obama. Some of the book I thought to be sensationalized and information that is not as worthwhile. I will also interview someone that tells the other side of the story of Senator McCain.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Dealing with Debt Collectors

By Dean Malone – www.deanmalone.com

Many consumers are shocked at the tactics used by some debt collectors. While there are likely many debt collectors that seek to comply with the law and treat consumers with respect, there are also many others that seem to care little about the law. A consumer must understand the motivations behind and the mechanics of debt collection in order to intelligently deal with a debt collector.

Money is the Motivating Factor

Debt collection is about one thing: money. Debt collection agencies exist to extract money from consumers and give a portion of that money to their "clients." Collection agencies' "clients" are the alleged creditors of the consumers from whom the collection agencies are attempting to collect. If a collection agency fails to satisfy its clients by collecting a large enough percentage of the dollar amount of the accounts placed with the agency for collection, then the agency's clients will recall their accounts.

The pressure to collect money begins with an agency's clients. Clients purportedly hold debts for which they are the creditor, and they want as large a portion of the debts collected as possible. A large, corporate client might place its defaulted credit accounts for collection with several different collection agencies. This enables the client to play the debt collection agencies against each other and threaten to retain only the agency that produces the greatest results.

A debt collection agency owner understands that she will only be able to remain in business if her agency satisfies her clients by collecting more money than other agencies. Therefore, she puts pressure on her upper level collection managers to collect as much money as possible. Those managers realize that their management positions, and ultimately their jobs, depend upon their ability to motivate their employees to collect the most money possible. Further, those managers might have "leads," or mid-level collection managers. Upper-level managers put pressure on the "leads" to collect as much as possible.

When a call is finally placed by an individual debt collector, it is placed with the understanding of and in response to the pressure brought to bear by clients, the agency owner, upper-level managers, and the debt collector's "lead."

The debt collector understands his goal: collect money from the consumer - now. The debt collector does not want money later. The debt collector wants and needs money now. Further, the debt collector understands that he will keep his job and earn bonuses only by collecting money in as large amounts and as fast as possible.

Bob’s Comments on Dean’s Article

This is why debt collectors go to any extent to collect debt. Harassment is a very effective way of collecting debt. Listen to the pod-cast of my latest interview with Dean Malone – Prudent Money Show – August 27, 2008.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Tackling College Savings Issues

So how are you doing for saving college education for your kids? A recent survey shows that the ones who are saving are cutting back due to tough economic times. The survey also asked parents what they felt public college, as well as private college, tuition would cost. Of the parents surveyed, 57% thought that college would cost up to $15,000 for a public school; 67% thought that a private college would cost up to $25,000 a year.

Well, apparently there is a little misinformation. Let’s talk about some real numbers as well as what you would have to save today if your child is 10 or younger.

According to Finaid.org, the cost of a public school costs $17,336 a year and $35,374 a year for students at a four-year private college.

If that is not bad enough, it is the inflation rate that makes sending your child to college so expensive. Since 1971, the average inflation rate has been 7.7% per year. The good news is that today, it is estimated to be around 5 to 6%. That 7.7% figure took into consideration the inflation filled years of the 70’s.

So, how are you going to tackle those big costs? I think that every parent wants to put their child through college. At the same time, it is important to really figure out how that is going to happen. It is extremely expensive and takes a pretty big monthly investment to pull it off.

For instance, if you had a 2 year old and you knew you wanted to put your 2 year old through a 4 year private college, it would take a monthly savings of $792.66 to handle that cost. For a public college it would take a monthly savings of $388.47.

For a 5 year old, you better start saving $985 a month for a private school and $482 a month for public education. As you can imagine, those numbers just get larger.

For a chart of approximate monthly savings for children ages 1 through 10, click through to this article.

So, how do you tackle this objective? It is important to put a game plan together and determine how much you are willing to cover of those expenses and how much you expect your child to pay for either through working or student loans.

If you start saving for college and it is your plan to pay for the whole thing, determine ahead of time what other goal that is going to compromise.

Be realistic about how you are going to fund college for your kids and to what level. This is a planning event that needs to take place way ahead of time. In the event that you don’t have the luxury to pay for all of the college costs, then start preparing your child now and start figuring out how college will be paid for. This can be great incentive for better grades and/or for your child to get a part-time job to help out with costs.

Now in the event that college is going to be paid for by the use of a loan, make sure you educate your child on how the student loan works and the awesome responsibility and liability that awaits them down the road.

If you as a parent are going to borrow for college, make sure that you have a game plan to pay that loan back and that it doesn’t become a problem.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

New Report about Banks and Overdraft Charges Shouldn’t be a Surprise

In their latest report, the Consumer Federation of America showed that banks are still gouging consumers with overdraft fees. Overdraft fees have their place. If a consumer doesn’t have enough money in their account, then the bank should not authorize payment and charge a service fee. Of course, if a debit card is not honored, then the consumer knows right away that they have a problem and can take the steps to fix it.

How about the consumer that overdrafts and doesn’t know it? Well the top 10 banks certainly aren’t taking the necessary steps to keep you informed. Technically, when you overdraft and the bank covers it, a loan has been made. However, banks do not have to disclose fees or how the system works. They don’t have to go through the process of providing a Truth in Lending disclosure. The bank customer just thinks that the account has overdraft protection. Little do they know that it can be a much bigger nightmare if this were to occur.

Think about it for a second. The bank could allow a number of overdrafts on small items through a few days. If you were to use a debit card for ten items over a two day period and be in the overdraft, you could rake up $340 in fees plus the money that you spent that you did not have in the first place.

For consumers who are running tight in cash, that could produce a huge problem. However, that is not the biggest problem. Banks can process your payments in whatever order they choose. So, they could choose to pay the largest to the smallest, the smallest first, or pay in any order. Seven of the top ten banks reserve the right to pay in any order that they choose.

Depending on how items are paid, it could mean the difference between hundreds of dollars of additional fees.

Six of the top ten banks charge daily overdraft charges after a certain amount of days. Seven of the top ten banks pose no maximum amount of fee charged.

So, why shouldn’t this be a surprise? Banks are hurting and need to raise capital. Who is the best to get that capital from? Over 17.5 billion dollars were raised last year in unauthorized overdraft loans with many of those fees triggered by small debit card purchases.

Is there any reason why banks love for you to use debit cards? Once again, debit cards carry the highest liability in so many areas and do absolutely nothing for your credit.

For a listing of the ten major banks and their practices, click here.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.