For only the second time I delve into the large universe of paying bills. I took this subject on because I work at a law firm which represents creditors. When I say they represent creditors, they are the last step between bill collectors and the bank. I should probably explain the process, so here it is:
The first step is your payment becomes delinquent. Should this be utilities, hair cut, bar tab whatever. The bank buys the debt and relieves the customer of the overhead. Bet you didn't know that? So in the end, banks like Wells Fargo, Chase, Bank of America and many others not only issue checking accounts and credit cards they also buy debt businesses. The next step is for one of these large banks to report your delinquency to a credit bureau. This is where things become confusing.
They don't post your information as a debt to X bank and trust. They post it as a debt to company you owe, so let's say "Bill's Bar". Normally when a bad debt is noted from a business, the amount and length of the debt is picked up by one creditor. So technically a small business would only be able to effect one of your three scores. Big banks on the other hand report to all three plus list your default to a company called FICO.
After your initial credit hit has been generated, you and your information are put into a system called TABBS. Don't ask me what it stands for because I don't know. TABBS remembers your information forever. So it's like a fingerprint. If you never screw up, your information will never be in there. One missed payment can put you there forever. In TABBS your information generates a hit for everything you do after you are first entered. If you pay a bill, use a debit card, buy gasoline with a credit card you are tracked. One screw up and a red flag goes up. But that's for later. What's important to TABBS is what it starts and that is a chain of events which you probably know as the debt collection process. Or simply where a debt collector calls you. Every time a collector calls you, they are legally required to enter notes into a program which logs your information. After one month of no payments, your information goes into TABBS. So you get a late payment again in TABBS which cycles this out to FICO and the three credit bureau's.
Legally (I know this from my job as cross training) a debt collector can only call when you say they can. They will make an attempt to call you at a certain time that is easy for them. When you call and say don't call back, they will. This is because they did not get a time they cannot call back, just a rude response. If you respond and say "call me back at 7, I work every day from 6 to 5" they now cannot call you between 6 and 5. So a couple days later they call you back at 7. Some pay at this point, but most continue down the rabbit hole. You say, I'm only available for 30 minutes because I have to pick up my kids from Karate at 8. You indicate that you have an hour and a half drive where you cannot answer and dinner takes you 30 minutes to make. This means from 7 to 7:30 in this case a debt collector can call. Then you say "after 8, I go to sleep. Please do not call me during night time hours between 9 p.m. and 8 a.m." BOOM! You've just given the debt collector an awesome opportunity. They can only call you for 30 minutes a day. So they do. You answer frustrated because they call at the same time every day for weeks. Then you say, just stop calling me I'm not going to pay.
That's where my firm comes in, except they also do the debt servicing as well.
This is the theme of this blog. During this legal process, you will be reported in TABBS over 50 times in two weeks. Remember, prior to this you were probably reported up to 8 times. Now the legal process comes in and leaves a paper trail. Then the lawyers visit the judge and every asset you own becomes the property of the debt collector. They liquidate cash and easy assets first. Then the Sheriff comes out and evicts you out of your own home. A sign goes up for public auction and your house is sold for pennies on the dollar. Your Social Security then has a lein placed upon it that you must be paid first......So just imagine, if you die and SS benefits were going to pay for your funeral think again! You just gave up the couple thousand dollars to a debt collector.
The point is that debt of any kind is wallowing. One must understand the difference between good debt and bad debt. How much good debt is too much, and how much bad debt one should take on. I will go over this in detail in further blogs. Here is a little taste:
Good debt: House mortgage
Service Debt (in another blog): Furnace loan, car repair loan, roof repair.
Bad Debt: Credit cards, cash advance, pawn loans.
These are just a few of the types of debt that I will go into later. First one must understand that good debt is anything that returns utility, or value to you. So by having a house mortgage you can utilize the home to live in.
Bad debt is anything where the utility is already used at the purchase. Basically any credit card debt.
However there is a key to understanding the financial world. One must have at least one source of bad debt. Yes this is true. First, bad debt allows you the opportunity to enter information into your credit score with the most impact. A house loan while large, doesn't really impact your credit report until 3 years after the purchase date. On the flip side, credit cards are the first to hike up your information and report you to TABBS. So having two or more credit cards runs the possibility that you could be reported to this program at least twice. Remember, TABBS is a negative program. Only negative reports go in there.
In closing of this portion of my blog, remember that you must understand when to flex on spending and when to lay firm. Those tickets to the game may be enticing, but can you afford them 3 days after your team lost? While a home is good, too much of a mortgage or any other loan that derives useful utility will send your ability to function down the drain.
Remember, patience is key!
