Archive for February, 2008

Example of Letter to Creditor?

Tuesday, February 26th, 2008

We all know that our income may change for the worse when we take out a loan. Rough times contribute to many loan defaults. Is this letter a good example of a change in personal finances or loan agreement? I would not be too quick to judge it but I think it needs more specifics (not that we could post those on here anyway).

To whom it may it concern:

This message is to let you know that due to a change in pay periods other issues with my personal finances, I will no longer be able to make the payments as per the original loan agreement. I have noticed different and varied amounts coming from lenders and I am unable to explain the amounts and to cover those amounts as per the original terms.

I have begun the process of counsel and they will be in touch with you soon to make payment arrangements so that this debt can be paid. Please note that I am not trying to avoid payment, I just need to make alternative payment arrangements and I have every intention of doing what I can to ensure that you are paid the fair amount that you are owed. You should expect that my counsel will be in touch with you in the 30 days.

In the meantime, I have notified the bank of my intent and the are aware that I am working on a way to get all of these items paid. However, the money will no longer be available through ACH debit. Also, I will not be able to be reached at my place of employment. If you need to contact me, you may leave a message on my cell phone and my legal counsel will be in touch with you soon to set up the appropriate arrangements.

Again, this is not an attempt to sidestep any debt, I am earnestly working to get this resolved and get you money that you are owed. Thank you for your patience and again, someone will be in touch soon to get this worked out. I hope that didn’t sound to harsh as I do intend to make arrangements to pay off this debt. Please accept my sincerest apologies.

Payment Plan Pitfalls for Retail Purchases

Wednesday, February 6th, 2008

“Sense of urgency” is one of the most important marketing tactics used by retailers. If they can make their customers believe that they have to buy a product now in order to satisfy an urgent need, they make more money. Creating a sense of urgency is easy—we see a brand new laptop on sale and we immediately want it—but it is more difficult to create the other side of the equation: How can our customers afford it?

Payment plans are the answer and they can be found in every retailer nationwide. No, the laptop doesn’t cost $2,000; it’s only $90 per month for twenty-four months! Nevermind that you’ll actually be paying more for the laptop because of the interest factored in.

There are plenty of opportunities to sign up for payment plans, thus meeting your desire for instant gratification, but should you commit to the terms of the payment agreements? Not always. Without payment plans, most Americans would be homeless and carless and generally without luxuries, but consumers must draw the line somewhere.

The Deception of Payment Plans

The most dangerous pitfall of payment plans is that they are deceptive. They make you feel as though you are hardly spending any money for a rather expensive item, so you don’t bother to factor that purchase into your budget. This is especially true if you put your payment plan on your credit card; not only have you put it out of your mind, but you’ll probably pay double interest.

If you’re going to sign up for a payment plan, consider the end price of the product as well as the monthly payment. How does that compare to the one-time price advertised by the retailer? It is sometimes more economical to simply save enough money to buy the item in one lump sum than to put yourself on a payment plan.

You can also talk with a manager and attempt to negotiate the interest on the payment plan. Sometimes this works and sometimes it’s out of the retailer’s hands. It never hurts to ask, however, and you might be able to swing a better price. After all, the store’s goal is to sell as much product as possible.

Beware the Extended Warranty

Another pitfall of payment plans is what I call the “Extended Warranty Scam”. Not only does the retailer want you to purchase the payment plan, but you are “strongly advised” to purchase the extended warranty as well. Reason being, if you don’t buy the warranty and your item breaks before you’ve finished making payments, you still have to make good on the payment plan and you’ll have to pay for repairs.

Under any payment plan, however, the consumer should receive free repairs for the extent of the payment plan at a minimum. Never purchase both because you’ll be taking money out of your own wallet. Instead, inform the store manager that you won’t buy the product unless the warranty is inclusive; otherwise, you’ll find the product elsewhere.

Longer Credit Terms – Longer Commitment

Since retailers want to sell payment plans as often as possible to collect the interest, they’re going to make the monthly payments as low as possible, which means a longer credit term. For example, 40-year mortgages have only recently been introduced to the real estate market, where twenty years ago, 10-year mortgages were fairly standard. This might seem like a benefit for the consumer, but it is really a sheep dressed in wolf’s clothing.

When you sign up for a longer credit period on a payment plan, you increase the amount of interest you’ll be paying on the item. Not only that, but your obligation is far longer to the retailer, and very few people can predict their financial futures. If you lose your job or are forced to take a pay cut, you still have to make good on the payment plan arrangement.

This is even worse with retailers who offer deals where you make no payments for several months to a year. This is becoming increasingly popular with furniture companies. Do you really want to be paying for your new leather sectional five years down the road? It’s important to think practically when considering payment plan options.

The Bottom Line

When you’re going to buy something anyway, payment plans can be a blessing, but you have to look at it logically. Don’t simply sign up for the first payment plan that presents itself; instead, shop around and find the most favorable terms for your investment. If you have good credit, you might be able to secure a no-interest period or even a no-interest purchase. If you have poor credit, you should be able to find a similar deal with a large down payment.

Debt isn’t something you want to leave to chance, so be smart about your finances. Don’t let fancy signs with low numbers tempt you into a purchase you can’t really afford, and don’t allow hard-sell sales pitches fool you.