A Little Counsel on Credit Counseling

on Sep 04 in Credit tagged by Mark

Recently I was asked what I thought about using a credit counseling service. Although I’ve never used a credit counseling service (no matter how many times it was suggested by my significant other) I have a pretty good understanding of the process – and some strong opinions too.

At first glance, the idea behind credit counseling is a good one. A consumer who is struggling with debt can work with a credit counselor to renegotiate their bills, often times reducing the amount of money they owe. Counselors can also setup affordable payment plans for consumers, making it easier to pay back the money owed. Creditors often agree to work with these credit counseling companies because they recognize the value these services provide. While banks and merchants dislike negotiating their debts with a consumer credit counselor, it’s better than not being paid at all.

Unfortunately, consumer credit counseling isn’t about consumers – it’s about profits. Most consumer credit counselors aren’t interested in helping out normal people – the focus is on making money. The whole process has turned into one big scam, where credit “counselors” are often more interested in profiting from a consumer’s debt rather than helping them. In fact, quite a few of these programs are operated by the lenders themselves (and therefore they aren’t very helpful). Not to mention the fact that after you complete one of these so called “credit counseling programs,” most lenders will not touch you with a ten foot pole.

Lenders aren’t interested in granting loans to people that have worked with credit counselors, and for good reason. When you work with one of these “credit counseling services”, you’ve allowed someone else to tell you how much you should repay your creditors without trying to work out a settlement plan with your creditors directly. Credit counselors profit on the difference between what you pay them and what they can get your debtors to accept. For example: You owe Visa $500, but your credit counselor says they can get Visa to settle for $300. The counselor then gets Visa to settle for less than you agreed to pay – let’s say $250. The credit counseling company then pockets the difference without your knowledge.

The net result of credit counseling is that your credit is still damaged, your creditors aren’t happy with the money they’ve received, and only the credit counselors have made money.

If you are faced with a tough situation and you’re considering credit counseling, take a few moments to learn about credit collection laws. Most people never take time to find out what they can do to stop the phone calls and letters, and that can drive people to make a bad decision (like joining a credit counseling program). After you learn about your rights, contact your creditors by mail (return receipt requested) and let them know what the situation is. Explain to them how you are planning on paying them back. Ask them for their help. Don’t threaten your creditors with bankruptcy – just tell them you want to repay the debt as fast as possible. Ask them for help with interest rates, late fees, and reducing the total. Ask them what types of payment plans they offer for people who have fallen on hard times. Also, if you’ve fallen on hard times due to a medical illness or a natural disaster. let your debtors know and offer to send them proof. You may find that your creditors are more accommodating than you might think.

Skip the credit counseling agency or debt repayment plan and work out a deal with your creditors on your own. Don’t let the middle man profit from your misfortune.

Luxury Cars: Not So Luxurious When It Comes To Repairs

on Oct 01 in Bad Used Cars tagged Bad Used Cars, luxury car, repairs, Used Cars by Mark

If you’ve ever considered buying a late-model German luxury car, make sure you do your homework first. Recently we had the opportunity to see what happens when a 2000 Audi A6 has a power steering failure…

Our little Audi developed a power steering leak at one of the seals. This type of repair can be pretty easy in most cars, but our Audi is a little different. In order to replace or rebuild the power steering rack the sub-frame needs to be lowered to gain access to the rack. This operation is listed as a 12-hour repair in the automotive labor repair manuals. In most shops, the labor rate is about $100.00 per hour (as of Sept. 07) and that means the labor alone on this repair is about $1,200.00. But that’s just the start.

Removing the rack is only the first step in the repair process. Once the Audi power steering rack has been removed, we still need to fix the leak. This can be accomplished in one of two ways: 1) Replace the rack or 2) Rebuild. Amazingly, the cost of both of these options is nearly the same – about $1,000.00. So, most people opt to replace the rack. Now we’re up to $2,200 to fix a leaky steering rack, but we’re not done yet.

The Audi’s steering rack uses a very special power steering fluid called Pentosin CHF 11S. This is the only fluid that can be used in the rack, and it runs about $20.00. Per quart. The good news is that the system only takes 19 quarts. And the hits just keep on comin’.

So let’s recap: We’ve purchased a $1,000.00 power steering rack, $1,200.00 of labor, $380.00 of power steering fluid and a 10% shop supplies fee of $258.00. That’s a grand total of $2,838.00 (plus tax). Sounds a little scary I know, but our Audi is damn-near useless without power steering…

What’s the bottom line? While an Audi A6, BMW M5 or Mercedes Benz C class all sound like great ways to show the world you have arrived, they might empty your bank account. If a power steering rack repair can be this expensive and complicated, just imagine what an air conditioning repair will cost! Our advice, avoid used luxury vehicles whenever possible. With that being said please understand we don’t dislike German luxury vehicles. The German manufactures have excellent warranties on their new vehicles. Most new German vehicles cover all maintenance and repairs for the first four years or so. This type of coverage can give you real piece of mind — but the moment that the warranty expires, watch out! Things can get pretty expensive in a hurry.

Old Luxury Cars: Steer Clear If You Can

on Oct 01 in Bad Used Cars tagged Bad Used Cars, luxury car, Used Cars by Mark

Buying an old used car (anything over 10 years) can be risky, but buying an old luxury car can be very risky. In fact, I’ve seen more MAJOR problems with older used luxury vehicles than any other type of vehicle. The moral here is simple — don’t make the mistake of buying a nice older car (like a 95 Mercedes) when you could have had a cheap newer car (like an 01′ Toyota) for the same price.

When you buy an older luxury vehicle, you’re taking a huge risk. Although it’s really cool to tell your friends and family you just bought a late nineties Range Rover with leather and a V8, the reality is you’ve bought a vehicle that’s incredibly expensive to repair. The fact is that most luxury vehicles don’t age very gracefully. Repairs can be very expensive and irritatingly frequent on older luxury vehicles such as Cadillac, Mercedes Benz, Land Rover, BMW, Lincoln, Audi, Porsche, etc. The reason is really simple – these cars ALWAYS have expensive and complicated parts that require special training to replace. Often times, these parts have to be imported from another country. Add it all together and you’ve got an expensive repair that a lot of people can’t afford.

Think of it this way – when that luxury car was brand new it had all the latest and greatest features that money could buy. In fact, some of the features on that older used luxury car were cutting-edge at the time the car was built. Cutting edge features are always more expensive to repair and less reliable than older, tried-and-true features. That means that when you buy a used luxury car you’re buying a car that is more likely to break down and more expensive to repair as it gets older.

Compare a 100k mile 1995 Mercedes Benz E320 to a 60k mile 2001 Toyota Corolla LE. Both have a retail value of about $7k (as of Sept. 07). The Corolla should run problem-free for another 60k miles (if not much, much more). The E320 (a beautiful car) should run 20k miles before it likely develops a problem. Please understand — I’m not saying the E320 is a bad car. I’ve just found that on average, most cars run about 120k miles before requiring a major repair. Because the Mercedes is so expensive and complex, it will cost 2 to 5 times as much to repair as the Corolla. Because the E320’s miles are so much higher, that repair will occur MUCH sooner.

Either way, you buy a car for $7k dollars. However, with the Corolla, you get to drive it for years before you make a repair. With the E320, you get to drive a year or two before you make a repair. Oh yeah – when you do need a repair, it will cost a lot more with one than the other.

It doesn’t take a CPA to figure out which option makes more financial sense.

I know some of you are saying “Mark, I don’t want an 01′ Corolla. I want a Benz.” Please. You don’t have to tell me about that because I know. I want one too. But here’s the deal – people that can afford to buy a new Mercedes got their money because they made good financial decisions. If you ever want to own a new Mercedes some day, start now by making good financial decisions and saving money. Don’t buy a car you know is going to be expensive to repair and likely to break soon. Besides, if you really need a nice car to impress someone, you can always rent something…