Considering Debt Consolidation? BEWARE!

You could be in debt 3 to 5 years LONGER if you go to the wrong debt consolidation company. On ABC NEWS, I answered the following questions from viewers, so it's wise to review these before you choose a firm!

Q. I’m at the point where I have $20,000 in consumer debt and I know I need to do something about it. I’ve been looking around for a company that will help me, but I want to know what red flags I should look for so that I can find one that is legitimate.

Drowning in Debt in Durango

ELLIE: Well there are quite a few red flags to look for. Stay away from them if they:
• Guarantee they can remove unsecured debt,
• Promise debts can be paid off at pennies on the dollar,
• Require substantial monthly service fees,
• Demand a percentage of your savings as payment,
• Advise you to stop making payments to your creditors,
• Say that creditors never sue consumers for non payment
• Promise that their system won’t hurt your credit record.

Q. We went to a debt relief company for an initial meeting and we’re not sure if we should go with them. They don’t charge an upfront fee, instead they charge a percentage of the amount they will save us. But we’re still going to have to pay. Is this good?

Samantha and Tommy from Riverside, CA via facebook

Ellie: In the past, it wasn’t necessarily good, because there wasn’t a regulation about what they claim they’ll save you and many companies inflated their estimates to get even more money from consumers than if they charged an up front fee. It was still a fee, but it was wrapped up in prettier paper so that the consumer thought they were better off. But there’s good news, under the new FTC rule, if the company bases its fees on a percentage of the amount it estimates you’ll save, it must also provide both the percentage and the estimated dollar amount that represents in writing.

Q. We are talking to a debt consolidation company and it’s all so confusing. We want to save money on our overall credit card bills, which cost us about $800 a month. But the company is telling us to make payments and save up—how much are we suppose to save?

Alton and Sharon from Oxford, NY via online contact form

ELLIE: Before the FTC rule, you didn’t really have a way of knowing but now you do. These companies usually ask you to make payments to a dedicated account. When a certain amount has been saved, they’ll go to your creditors and offer to pay off a percentage of the debt. You should ask the company: “How much will I need to save?” The new rule requires debt settlement firms to provide a reasonable estimate of the amount you’ll need to save before they’ll make an offer.

Q: When my brother and his wife set up a debt consolidation, they had him set up a fund that he made payments to. It turns out that the place that held the money was also in partnership with the debt company and he wasn’t allowed access to the money. Is this the way it is suppose to be done?

Audrey submitted via Online Contact Form

Ellie: No, it’s not suppose to be that way and under the new FTC rules this kind of holding or savings account will have closer regulation. The FTC now requires that the customer have full access to the funds, they must be held at a financial institution not associated with the debt consolidation firm and the customer would have the right to withdraw the money at any time.

Q. I was thinking of calling my creditors myself but my friends say I should let the debt consolidation company call them. Who is right?

Moriah Stephens from Allentown, PA

Ellie: In this case, I think you are the one on the right track. You should try to call your creditors yourself before hiring a debt settlement firm. You can sometimes develop your own workout plan because it is in the creditor’s best interest to help consumers pay off their bill.

Q. Where can I find a legitimate non-profit debt consolidation company?

Mike from Mechanicsville, VA via Ellie Kay’s blog

Ellie: The National Consumer Credit Counseling service is a non-profit organization that has thousands of partners across the county. Go to Nfcc.org to find an office near you.

Ellie Kay

America's Family Financial Expert (R)

Red, White and Scammed - Part II- Answering Your Questions

Here's a blast from the past--when our children were little & white tights were in!

This is part two of a series that is an effort to help military families. I've been on ABC News and KLOVE these past two weeks, answering your questions.

Here's a transcript for those of you who asked--Be sure to pass this link along to your military friends!


Q. Ellie, you came to our Army base to speak last November and I think that your message really helped me get through my husband’s deployment. Thank you for the work you are doing with military families. I did have a question about ordering items online. You showed us how to pay 40% less by using some websites, but how do I know if the website is legitimate?

Steph from Rothenburg, Germany
Submitted via online contact form

ELLIE: Steph, thanks for writing and thank you for what you do as a military family member, I admire you so much and know it’s a hard job! To avoid getting scammed online, make sure that you never respond to an email inquiry, but you find the site yourself on your own search. Then, go to BBB.org to make sure they aren’t listed and also check out the FTC.gov, plus the Internet Crime Complaint Center at IC3.gov, to investigate complaints against the company.

Q. I’m 19 and have been a soldier for 18 months. There are quite a few of my friends who regularly go to the payday loan business that is right outside our base. I keep telling them that they are losing a lot of money by getting a pay advance, but they say the interest rates are low and it’s no big deal. What do you think?

"Private Benjamin" from Ft Bragg
Submitted via Facebook

ELLIE: Private Benjamin, thx for your service and you’re the smart one. Tell your friends that some of these payday loan companies are charging as much as 500% interest. Even though the Defense Authorization Act of 2007 put a cap of 36% on interest loans to military members, many of these companies skirt the law by added exorbitant fees and calling the loans “revolving lines of credit” instead of payday loans in order to bypass the law.

Q. My husband’s hazardous duty pay was backlogged by red tape and didn’t arrive early enough for us to pay our bills. How am I supposed to pay things like our car loans while he is in the Middle East if I shouldn’t go a payday loan center?

Justine Long, Fort Drum, NY
Submitted via Facebook

ELLIE: In situations like yours, there are resources as near as your Army Community Services center where they can offer free financial advice. In extenuating circumstances, such as yours, you might even qualify for special programs offered by the Army’s charity, Army Emergency Relief or the AER. By going to these legitimate resources, you can avoid getting ripped off.

Q. Our community here in Alamogordo, NM is very supportive of the military and so is Las Cruces, which is a little further down the road. Many businesses carry banners that say, “we support our military.” Even so, a friend of ours bought a car from one of these places and it turns out that the dealership didn’t own the title and then went out of business. Now our friend has an $12,000 loan to pay and no car to show for it! How can we avoid being “taken” and who can we trust?

Heidi Rothenburg, Holloman Air Force Base
Submitted via blog

ELLIE: Heidi, I’m so sorry to hear of that situation, especially from a business that advertises its support of the military. Unfortunately, auto vendors are a huge source of complaints. In most cases, the salesperson will offer you “easy credit” but you pay jacked up prices, hidden fees and interest rates of 15% to 20%. Military financial counselors have files full of horror stories. Bad dealers have taken cars in trade, promising to pay them off and then they go out of business, leaving service members with two payments. Go to BBB certified dealers and if the deal sounds too good to be true, just walk away, because it usually is. Or go to your base's ACS, Airman & Family Readiness Center or Fleet and Family Support Center for local financial counseling.

Q. My daughter just got commissioned with the Marine Corps and I’m concerned about the possibility of someone taking advantage of her financially. Are military members bigger targets for fraud than civilians?

Sue Simpson, Stillwater, OK

ELLIE: Military members have guaranteed paychecks and won’t ever get laid off. This makes them good credit risks. But it also makes them targets. Some people see the military as cash cows and they want to get their cut. One of the greatest evidence of this fact is that outside of any large military installation, you’ll see businesses that offer payday loans, pawn shops, and check cashers. These are the kinds of businesses that prey on unsuspecting military.

Stephanie, Phoenix, AZ
Submitted via email

Thank you to those who serve!

Ellie Kay

America's Family Financial Expert (R)

Red, White and Scammed - Tell Your Military Friends to Beware!

This week on ABC NEWS and KLOVE, I've been discussing how
thousands of service members engaged in fighting America’s battles overseas are now encountering a foe here at home. Enlisted men and women are easy marks for sleazy car dealers, insurance scammers predatory lenders, and identity thieves. So pervasive are the rip-offs and so troubling is the debt incurred by military personnel that US Department of Defense officials recently labeled the situation a threat to national security.

We have a long tradition of military service in our family. My grandfather was a bombardier who died in WWII, my father is a retired chief master sergeant in the Air Force, my husband, Bob, flew Air Force fighters for 25 years, our son, Philip, is a senior at the Naval Academy and will to cross commission into Marine Corp Aviation, our next son is headed toward the Air Force Academy next year and the youngest son wants to go to Westpoint and be in the Army. In fact, the photo you see is Bob, pinning on the Philip's Airborne wings--the very wings Bob earned 30 years ago when he was a cadet at the Air Force Academy!

Q. The DOD has labeled the fraud situation among the military as a threat to national security. How does getting scammed impact lives overseas?

ELLIE: It’s all about distraction. When military members are distracted, whether it’s worry over identity theft or trying to wondering if their spouse is able to deal with messy finances at home—then that’s when accidents happen. Distraction leads to worry which leads to accidents. And when accidents happen, then there is loss of life. So if we want to help save lives overseas, then we can all do our part to protect our military members by exposing rip offs and scams whenever possible.

Q. What kind of paycheck does a typical recruit make & what are some of the questionable ways that local businesses try to get a piece of that paycheck?

ELLIE: They earn about $1800 per month & these paychecks can be carved to bits by bad deals. For example, a computer store outside of Great Lakes Naval Training Center in Illinois employs attractive women to troll for new sailors. Once they get them inside the store, they are pressured into buying a very basic laptop for more than $4000, which is three times as much as the computer is worth. Then they finance the deal and the computer ends up costing even more with the store also making money on financing.

Q. What are some other common ways that the military is ripped off and people should be aware of?

ELLIE: There was recently a multistate investigation launched into life insurance scams that were being perpetrated against military members just before they took off to the Middle East. These scamsters sold soldiers extremely overpriced or misrepresented policies, taking advantage of the emotional situation of leaving families to go into harm’s way. This investigation ended with the companies offering more than $70 million dollars in refunds to thousands of service members. When it comes to life insurance, military members are offered SGLI or Servicemembers Group Life Insurance, which is a legitimate source for low premiums, so there’s really no need to secure other private insurance!

Q. Tell us about the “Red Cross” scam that is getting a lot of attention among military families?

ELLIE: This is fairly despicable, as it prays on the emotions of family members. A con artist claiming to be with the Red Cross will call a parent of a servicemember or their spouse, telling them their loved one has been injured and they need their social security number to authorize help for them. In some cases, they ask for an initial cash payment. Military members need to clear any report of injury through the chain of command or by contacting the base family community services.

Q. It seems that our military is very young, what is the average age of a service member and do they receive any kind of personal finance education as part of their training?

ELLIE: Yes, they are young, in fact, the average age range of military members is between 22 and 28 years old. Of the groups I routinely speak to around the world, I’d say that the average 22 year old has an even younger wife and a baby as well—so it’s a lot of responsibility for someone so young. The good news is that since 2004, service members learn about personal finance as part of their early training. When I go to give my “Heroes at Home” message I teach about finances and also encourage them to use the resources they have available to them on base. Army Community Services, Airman and Family Readiness Centers, Fleet and Family Support Centers—all of these have personal finance counselors there who are ready and willing to give free financial counseling to service members and their families. It’s what I call my $300 tip, because a couple hours with the caliber of financial professional at any of these centers is equivalent to paying $300 to a CFP or CPA.


Ellie Kay
America's Family Financial Expert (R)
http://www.elliekay.com/

Ellie Answers Your Questions About Job Scams & Homebased Businesses!

This week I was on ABC NEWS "Good Money" show, answering your questions! Be sure to email us for a FREE "Homebased Business File" and mention you heard me on "Good Money!"

Q. We are interested in starting our own home business and want to know what first steps we should take in deciding what kind of business to operate from home.
Julie and Vick from Rancho Cucomonga, CA via facebook


ELLIE: There are basically three kinds of businesses: sales, service and manufacturing. Sales can take many forms such as retail or wholesale, mail order or direct sales. They tend to offer more flexible hours but require more paperwork. Service businesses are the easiest to set up and can require the smallest initial investment. If you do something well, like painting or decorating, fixing things, cleaning houses repairing computers, etc, you can start your own service business. Finally, there is manufacturing—everything from crafts to jewelry, furniture and more. Once you decide on the kind of business, do your research online or with the help of a research librarian, subscribe to industry magazines and talk to those in that kind of business.

Q. Are there any online resources available for us to find someone who will give us free advice on our small graphics and design business.
Mike and Victoria from Syracuse, NY via online contact form

ELLIE: Yes! You can go to SCORE.org, which is non-profit organization designed to help small business owners with over 12,000 volunteer counselors across the country. They can hook you up with a mentor to answer your questions online or in one of their offices. Their volunteers are made of experts in 600 fields who have been successful in their own businesses and include former CEOs! If you are interested in funding your startup business you can go to Kickstarter.com or since you’re an artist you may want to find funding for your project by going to IndieGoGo.com

Q: I’ve worked for the same construction company for 20 years and just got laid off. I have a dream to start my own carpentry business, but I’m not sure that I have what it takes to do it. How do I know if I can hack it or not?
Mark submitted via Online Contact Form

ELLIE: That’s a great question, Mark, and since the SBA says that 1 in 2 small businesses will fail within a year, you have every right to question your ability to succeed. I think the key lies in planning and doing your preparation work. It’s important and assess your personality and skills. You can take the Personality ID test offered at your SBA center, college, library or community center. It will help you look at yourself from a fresh perspective and asses whether your personality is best served as an owner or an employee. I also think it’s important to pursue your passion. Do you really love carpentry or has it just been a job to you? When you pursue your passion, not only does it get you up in the morning but it makes more likely to succeed!

Q. My mom sells Premier Jewelry and my best friend sells Mary Kay. Both of them are pressuring me to sign up under them in order to build their business. How do I make the decision about which homebased business to start.
Jenny Monroe from Oklahoma City, OK

ELLIE: Jenny, there’s a phrase you need to learn right away: It’s nothing personal, just business! You need to make your decision based on what is right for YOU, not based on who you love more: your mom or your friend! I’ll send you the Homebased Business file for free if you go to elliekay.com and in that file you’ll see 25 questions you need to ask each woman about their business including: What are the start up costs? What is the hostess plan? Does the company pay sales tax or do I have to do that myself? How many downline generations are paid? How much inventory is needed? It’s important to have all the facts available and then make your decision based on business and not on anything personal!

Q. I’ve dabbled in writing here and there but I want to try and go into it on a more full time basis, should I try to freelance various writing projects or should I offer my writing services as a subcontractor to an existing company that need writers?
Ted from Chicago, VA via Ellie Kay’s blog

ELLIE: The answer is “yes.” It’s easier to launch a service based industry, such as what you’re essentially talking about by subcontracting work to an existing firm. Outsourcing is becoming more and more prominent as jobs are streamlined and companies downsize. It’s cheaper to hire a contractor than paying benefits to a full time employee. So hook up with your local Chamber of Commerce and plug into businesses in your community. At the same time, get The Writers Guide online or from your local library and begin to pitch articles to various periodicals by writing a good query letter and tailoring each article toward the specific needs of the publication. Ted, with how work and bit of luck you’ll find yourself doing what you love and having your dream business at the same time!

Ellie Kay
America's Family Financial Expert (R)
www.elliekay.com