Archive for March, 2010

Getting out of debt is stressful enough, and reading about debt management all the time can be depressing (even if you’re reading a lighthearted and exceptionally well-written blog like Debtbeat.)

So while we offer up our suggestions on the best credit management books in our Required Reading section, today we’ve got something new and exciting for you.  If you can believe it, we’ve gone into our pop music archives and put together our collection of the hottest tunes to get your fiscal funk on.

These are money-themed records that actually don’t suck.

We’re sorry that Eddie Money and Johnny Cash didn’t make the cut, but check out these albums and let us know who we missed in the comments.

• To kick it off, how about Get It on Credit by Toronto? Isn’t that how most of our money troubles begin?
• And once you’ve charged it all, then come the Bills Bills Bills. (Thanks, Destiny’s Child.)
• There’s Life & Debt, a reggae compilation featuring the Ziggy Marley.  Because only Haiti knows more about being broke than Jamaica.
• Of course a lot of our problems have been caused by the housing bubble, driving many people into Foreclosure. Which is also a hot album to listen to while driving.
• You don’t want to go Bankrupt, but you do want to get that album. This Dr. Hook masterpiece is more old-school than saving for a rainy day.
• Need to cut spending, try a budget.  Or if you’re a fan of the Kinks, a Low Budget.
• From 50 Cent we have Get Rich or Die Tryin’.  Unlike other rappers (I’m talking to you, Hammer) Fiddy isn’t hurting for cash after making $400 million on a deal with Vitaminwater.
• Young Jeezy gives us The Recession, which features very explicit lyrics.  Fitting, since this economy has a lot of people swearing and threatening violence.
• Ask Tiger Woods about Love vs Money. The loverboy of the links has now lost millions in sponsorships and tour winnings.
• Remember that slow and steady wins the race. Earn more, spend less and take control of your credit. In no time at all your debt will be Paid in Full!

New student lending rules that go into effect on July 1, 2010 will bar private banks from issuing federally-subsidized student loans and make the Federal government will be the sole source provider for low-cost Stafford loans.

In cutting out middle man, Congress has acted to save the taxpayers money and direct the money that otherwise would go to companies like Sallie Mae back into the pockets of students in the form of more grants and other aid. That’s good news.

Unfortunately this will mean the students will also have dramatically fewer choices for getting college money moving forward. With many banks having already scaled back their student loans due to the credit crisis, this move by the Obama administration will just about signal the death knell for low-cost student loans from the private sector.

With one interesting exception.

Just like peer-to-peer lending sites like Prosper.com and Lending Club allow individuals to borrow from other individuals at rates that are typically much lower than the unsecured loan rates offered by banks, a company called People Capital now offers a peer-to-peer lending platform where students are matched with college funding sources — be they individual investors, philanthropic/affinity groups or even financial institutions.

This should be especially attractive to undergraduates who can solicit their parents, grandparents, aunts, uncles and family friends to help put them through school while still getting their money back with interest.

Who can turn down a fresh-faced freshman asking for a little helping hand?

However there are stipulations. To borrow money through People Capital an applicant must:

• Be enrolled at least half time and pursuing a degree at a Title IV-eligible US educational institution.
• Be both a citizen and a resident of the United States.
• Have a valid Social Security number.
• Be at least eighteen and the age of majority in your state of residence which must be a state in which People Capital is currently lending. Despite this being an online service, each state much grant a charter for People Capital to make loans.

Like other P2P sites, investors bid on loans to fund in an auction process, and the lender offering the lowest interest rate wins funding of the loan.  Money from the lender’s People Capital account is then sent to student’s college.

Also noteworthy is the high barrier to participate as a lender in this forum.  Currently, all People Capital lenders must be accredited investors as defined under Rule 501 of Regulation D promulgated under the Securities Act of 1933. This basically limits investors to high net-worth individuals, banks, retirement funds and other heavy hitters.

This is very different from other sites where $25 or so gets you into the lending game.

I am a big fan of P2P lending and think that this could be an excellent funding source when all Federal financial aid, scholarships and grants have been exhausted. Always go for the cheap money first, but a cost-effective way to get a college degree is nothing to shake a stick at.

In olden times (like way back 1990) people worked almost exclusively with one local bank for deposits and loans. With the advent of the Internet and the global too-big-to-fail financial conglomerates, it became all-too common for a customer to have their checking account with Citibank, their mortgage with PNC, their credit card with American Express and their investments with Charles Schwab.

While chasing good rates, convenience access or rewards points makes sense on one level, it has cost consumers something very valuable: leverage. Unless someone has beacoup bucks in a bank, they aren’t viewed as a particularly valuable customer. As a result, banks haven’t been bashful in nickel and diming their one-account clients to death. They make tons of money, and in the worst-case scenario they lose one customer with one unimportant account.

Perhaps it’s time to take advantage of the fact that you can now bank under one umbrella with one institution. It’s now possible to have all of the following types of accounts managed by one financial organization:

• Checking accounts
• Savings accounts
• Stock, bond and mutual fund investments
• 529 plans
• Credit cards
• Auto loans
• Mortgages
• Lines of credit and
• Insurance products

Banks want what they call “Share of Wallet” and are willing to work with you to get it. And it’s not hugely important how big your wallet is.

To understand why this can be a good idea, I’ll give you an anecdote from my banking days.

I started my professional career in retail banking and served as a Vice President and branch manager for one of the nation’s largest banks. In that role I was often challenged by customers to grant them special favors, or solve problems. For example, a customer would overdraw their checking account, rack up several overdraft fees, and ask for a fee waiver.

One of the first things that I would do is look at the depth of the client relationship.  Not necessarily how much money they had with us, but how much of their overall financial business they gave us. That determined how valuable they were as a long-term customer, and how far I was willing to go to help them. 

While you may not ever walk into a local bank branch, the same philosophy applies. Whether talking to someone around the corner or in a call center halfway around the world, loan officers, customer service reps and supervisors can and will be swayed with the thought of losing a customer.

And if they don’t have this information (or don’t seem to understand what’s at stake) don’t be bashful about telling them, and threatening to pull your entire portfolio of business. What’s very effective is letting them know that you’ve taken down their name and will write a personal letter to the company President/CEO explaining how they cost the bank your business. That would have gotten my attention.

So consider consolidating your accounts under one roof again. You may be pleasantly surprised what discounts and terms you’re eligible for in doing so.

Of course, you shouldn’t pay out the nose for a financial product if someone is offering you a better deal. But at the end of the day, most banks have pretty similar product offerings and rates. If you show some loyalty to one firm, then you can demand it in return. And you’ll have real leverage in negotiations over rates, fees, and policies. Even if you’re not Mr. Moneybags.

Do you agree? Disagree? Let us know in the comments.