Lynnette Khalfani-Cox, The Money Coach and her best-selling book Zero Debt: The Ultimate Guide to Financial Freedom has been seen on the following television shows and networks:

• Dr. Phil
• Oprah
• The Tyra Banks Show
• Rachel Ray
• CNN
• FOX
• ABC
• NBC
• The 700 Club

• Financial education counselors
• Debt management trainers
• Home buyers who are trying to qualify for a mortgage
• Certified Financial Planners for their clients
• Real Estate agents for their clients
• Loan officers for their clients
• Anyone that has been turned down for a loan
• Community based organizations i.e.  churches, non-profits

Ever notice how your mailbox seems to be flooded with credit card offers every week? If your residence is like the average U.S. household, you probably get dozens of credit card solicitations in the mail each year. To put an end to them, simply call 888-5-OPT-OUT or go online to www.optoutprescreen.com.

The toll-free number I’ve given you, 888-5-OPT-OUT is an automatic phone service that’s run by the four main credit reporting agencies: TransUnion, Experian, Equifax, and Innovis. (Many of you may be thinking: “What is Innovis?” I’ll tell you more about that company – and the credit report you’ve probably never even heard of – later, in Day 4. For now, though, let’s stay with this OPT-OUT number).

The reason this number works is because it takes you out of the credit bureaus’ databases for pre-screened mailings. This will force the credit bureaus to stop selling your name and address to banks and other institutions that send you credit card offers each month.

Research companies and public-interest groups, such as the Consumer Federation of America in Washington D.C., track the rate at which banks and other credit card issuers send out credit card offers. What they’ve discovered is that some six billion credit card solicitations are sent to people like you and me every year. Imagine that: a whopping six billion credit card offers, or roughly 60 per U.S. household! And the numbers keep rising every year. According to the Mail Monitor report from Synovate, a Chicago-based research company, 90% of credit card mail comes from the 10 largest credit card issuers. If you’re wondering why in the world banks send out so many darned solicitations, the obvious answer is because they’re hunting for new clients. But the less obvious reason is that financial institutions are also responding to changing customer demand. When interest rates rise, banks often increase their mailings because with higher interest rates, people often start looking for fixed rates products on things like credit cards and mortgages. As a result, consumers are more likely to be receptive to new offers for credit. Still, if you’re like most people, you probably tend to give credit card offers the cold shoulder – perhaps tossing them in the trash can without even opening them. That’s why the average response rate to credit card solicitations is miniscule – just 0.2% in 2006 – a record low, according to Mail Monitor and other industry trackers. For all the mail being sent out, direct mail doesn’t seem to be the most profitable way for credit card companies to do business. For starters, they have to send out more than 250 solicitations just to acquire one new customer. That means up to $200 spent to attract every new cardholder.

Five Reasons to Opt Out of Credit Card Offers

No matter how many tantalizing credit offers banks dream up, you can minimize the clutter in your mailbox, thanks to the Fair Credit Reporting Act. This law permits you to opt out of pre-screened credit offers, thereby greatly reducing the amount of “pre-approved” credit offers that come to your home.

It’s worth it to opt out of getting these pre-approved offers, for many reasons.

1.  For starters, you’ll keep yourself from going deeper into debt by limiting the number of credit cards you have.

2.  Additionally, you’ll protect your credit score, because every time you apply for a new credit card, an “inquiry” goes on your credit file.

3.  Reducing the number of credit card solicitations you receive can reduce your risk of being victimized by identity theft.

4.  By opting out, you will also save yourself the time and effort of having to deal with so much junk mail day in and day out.

5.  And last, you’ll put an end to being frustrated by credit card companies that ultimately decline your application or turn you down for the amount of credit they originally used to tempt you.

For example, have you ever received a credit card offer in the mail, promising you “up to $20,000?” Then when you finally take the bait, and go ahead and apply for the blasted card, you wind up getting approved all right – but the limit is more like $2,500 or $5,000. If you ask why you didn’t get the $20,000 limit or whatever was originally indicated on the credit card offer, the bank’s reply will always be the same: “Our decision was based on your credit history and current credit use.” Sure it was. But they had a sense of your credit history when they first solicited you. You fit a certain profile, and that’s why they made you the offer in the first place. So who needs that kind of tease – only to be disappointed? Do yourself a favor, and instead of getting frustrated with this system, opt out instead.

Next:  Day 1: Stop the Flood of Credit Card Offers (Part 2)

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• My bank lowered my credit limit and that hurt my credit. Help me Money Coach! (askthemoneycoach.com)
• Should I pay my credit card balance in full before the statement cycle ends? (askthemoneycoach.com)

This Article Answered The Following Questions

• Why are credit card companys sending so many credit card offers
• why do credit card companies send out so many appliations
• why do credit copmpanies send out so many applications

Image by rinkjustice via Flickr

Payday Loans: ‘Credit’ You Must Never Accept

I usually try to refrain from giving absolutes when dispensing personal finance wisdom. But this is an area where I want to be extremely clear: Never, ever, ever get a payday loan.

If you’ve taken a payday loan before, then you probably know that you’re being charged loan-shark rates – worse than most loan sharks charge, as a matter of fact. But for those of you new to this world, here are the facts.

• Payday loans are short terms loans made by financial “institutions.” These loans are designed to “tide people over” until they get their paycheck.

• Payday loans work like this: A customer needs money before he gets his paycheck next Friday. To make ends meet he goes to a payday lender who verifies that the individual has a legitimate job and a bank checking account. The customer gets a $300 “loan” – immediate cash in exchange for writing a postdated $300 check to the payday lender. This check is cashed once the individual’s payday rolls around. But the payday lender doesn’t actually give the consumer $300. Instead the customer will get $255; the other $45 is the fee or interest cost associated with taking this payday loan.

• On an annualized basis, payday loans like that work out to be about 400% per year. Some have effective Annual Percentage Rates (APRs) of nearly 800%.

• The average person who gets a payday loan gets one per month, or 12 per year.

• Regulators and consumer protection groups are all worried about how payday lenders operate, especially their aggressive collection practices. The Federal Trade Commission, Consumers Union and the Consumer Federation of America have all expressed concern about the payday loan industry.

• Cash-strapped consumers often “roll over” their payday loans multiple times, and wind up paying more than 1,000% in interest, according to a study by Georgetown University researchers.

• By partnering with certain financial institutions, and skirting various statutes, payday lenders are able to get around state usury laws that prevent lending entities from charging sky-high interest rates.

• To combat its negative reputation, the payday loan industry in 2007 launched a $10 million marketing campaign.

Bottom line: If you think regular old debt collectors bound by federal laws are hard to deal with, you definitely don’t want to fool around with payday lenders and subject yourself to their shenanigans. Even if you’re desperate for money to pay your debts, seek any other source of cash you can, such as a pay advance from your employer or a loan from a family member, rather than resort to payday loans.

If you’ve taken all the advice in Zero Debt, I know the last month has been fruitful and eye-opening. Keep track of your progress. And do let me know about your victories in conquering your debt and mastering your finances. To share your story or to ask me a money management or personal finance question, email me at info@themoneycoach.net. Please also visit my web site, www.themoneycoach.net, to learn more smart ways to save, spend, or invest your money.

Here’s wishing you Zero Debt status and financial freedom for a lifetime!

Lynnette Khalfani-Cox, The Money Coach

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Financial Tips for Parents Regarding College Loans

For those of you who are parents, it’s understandable that you want to help your child avoid the plague of student loan debt, but there’s a right way to go about doing it and a wrong way. The wrong way is to completely sacrifice your financial future, forgoing retirement savings and just “hoping for the best” when you’re in your Golden Years. The right way is to approach college with some smart financial planning. Take these tips to reduce the student loan burden that you – and your kid – will face later in life.

Tip #1: Save for College as Early as Possible

You already know how expensive college is right now. But what about the future? Well: the annual price tag for a public school is estimated to swell to more than $35,000 in the year 2017, and an incredible $86,000 for an Ivy League school. Unfortunately, 31% of parents who plan to help pay for college haven’t started saving yet. Start socking away as much as you can now to decrease the need for loans in the future.

Tip #2: Open a 529 Plan

A 529 college savings plan is the best thing going when it comes to saving for your child’s college education. Available in every state in the country, a 529 plan is portable and can be used at any qualifying institution of higher learning in America. It’s a great way to sock away tens of thousands of dollars annually for higher educational expenses, because money in a 529 plan grows tax-free if it’s used for college costs. Many states even give you a tax deduction for contributing to a 529. Best of all: these plans are maintained in your (or the donor’s) name, so they don’t reduce your child’s chances for receiving financial aid. For more info on 529 plans, visit www.savingforcollege.com.

Tip #3: Plan for Some Aid

Unless you can truly afford it without changing your whole lifestyle, strike a balance between trying to fund your kids’ college account, and planning to get some need-based aid. There’s no rule that says you have to foot your son or daughter’s entire college tuition bills, plus pay for all his or her living expenses and other needs.

Apply for aid, but don’t over-estimate how much your child will get. Although 72% of parents think their kids could get merit aid, the reality is that only 28% of students currently do. Your child’s financial aid package will be based on your income and assets, the cost of the school, and whether you have other children in college. Take your entire situation into account when you’re thinking about aid. Do you have more kids or other family members who’ll need money for school or other reasons? Also be mindful of your own income picture – not to mention rising health care costs, current bills, and the need to save for your own retirement.

Tip #4: Impose a Spending Cap

It’s very easy to lose track of money spent on college. You can write a check here or there for living expenses, allow your child to take money out of your account, pay his or her credit card, and send in tuition payments to school – and before you know it you’ve spent many thousands of dollars. There is a better strategy.

Sit down and talk with your son or daughter and set a budget. Explain what is financially feasible and possible for you to do – and what isn’t. If all you can afford to give (or take out in loans) is, say $5,000 or $10,000 a year, then put that number on the table as your limit, then stick to it. For some advice on how much debt you can realistically manage, go to a financial planner who specializes in college financing. You can get a referral from www.niccp.com. Alternatively, any number of college financing calculators that are available online, such as the one at FinAid (www.finaid.org/ calculators).

Tip #5: Don’t Skip Your Retirement Savings

Experts from the National Institute of Certified College Planners agree with me that you shouldn’t sacrifice your retirement to pay for or borrow money for your child’s education. Think about it this way: Little Johnny might be able to borrow for college, but who’s going to loan you money for your retirement? I know this may seem like tough love, but it’s foolish to put yourself in the hole financially in ways that make it almost impossible for you to recover. Unfortunately, many parents do exactly that. I know it’s out of love for your kids. I would do most anything for my kids too. But some of the things we do as parents really don’t serve our children’s best interest, or our own long-term well being. Check out these findings from Alliance Bernstein, which surveyed parents about their children in college:

• 66% of parents say they will have to delay retirement because they’ve helped put their kids through college
• 59% are working or plan to work second jobs to help pay for their children’s college education
• 47% of parents took out a second mortgage to pay for tuition
• 33% of parents have had an adult child return home after graduating from college

Again, it’s no sin to help your child succeed – and education is one way to do so. It is a travesty, however, when you get sent to the poorhouse in the process.

Tip #6: Allow Your Child to Borrow First

This is a more cost-effective way to take on college debt, since federal Stafford Loans stand at a maximum interest rate of 6.8% for students, but PLUS loans (Parent Loans for University Students), which are made to parents, carry an 8.5% interest rate.

Tip #7: Use College Saver Programs like Upromise.com and Littlegrad.com

When you enroll in these programs, a small portion of the money you spend on everyday things – like gas for your car, clothes purchases or entertainment – gets funneled into a savings account for your child. Heck, if you were going to spend the money anyway, you might as well get a little rebate for that spending, which can help pay down college expenses.

Hopefully, these tips will help you and other well-intentioned, good-hearted parents like Christy Hammer, who recently wrote to me, saying: “My husband and I have five sons. In only nine short years, our oldest will be heading off to college, with the others following close behind. My husband and I both have student loan debt, and we’ve been taking forbearances because of our other obligations. Our main goal is to be completely out of debt before our oldest son begins attending college. At the present time, it seems unreachable to do so. We have two car loans and some consumer debt, but our major debt is our student loans. We also still rent a home because we don’t feel that we can afford to purchase one right now, nor do we have a down payment. We still have hopes and dreams of how we want our financial and families future to be, and I’m hoping … to reach our goals of being out of debt, owing our own home, and sending our children to college. Our parents didn’t help us with college, and we want our kids to graduate from college debt free.”

All parents understandably want a better life for their children, both in terms of their personal happiness and their financial security. Following the steps I’ve outlined above will go a long way toward helping you and your kids become debt free.

Next – Day 31: Address on Other Money Woes, Credit Issues, or Special Financial Circumstances (Part 7)