Mutual Fund Expenses Explained by Gary Foreman gary@stretcher.com Is your mutual fund management company getting rich whileyou're not? You know that they make money by managing some ofyours. But are they charging you too much? How can you tell?Let's answer some of the most common questions about mutualfund expenses. What are operating expenses? They'll include the payrollfor investment analysts, phone bills, rents for office spaceand the cost of printing and mailing your statements.Basically, it's the cost of managing your money. One notableexception is the commission that the fund pays to buy and sellsecurities. That's not included under operating expenses. It'sconsidered a 'transaction expense' in most cases. How do you calculate expense ratio for a specific fund?The math is pretty simple. Just take the operating expenses anddivide them by the average assets. Both figures will beavailable in the prospectus or quarterly report. For instance, afund with $10 million in assets and expenses of $100,000 wouldhave an expense ratio of 1.0%. How much is a 'reasonable' amount to pay for fundexpenses? That depends on two things. First, how hard is it tomanage the money and, secondly, how aggressive your managersare. Let's take two simple examples. First, consider a fund thatbuys US Treasury bonds and plans to hold them to maturity.There's not much research required so the expenses should below. In 1996 the average expense for a government bond fund was1.02%. Compare that to managing a long-term growth stock fund.You'll want your analyst to do a good job in finding the nextMicrosoft. That takes time and effort. And the average cost ofmanaging a growth fund was 1.42% in '96. As you would expect,the cost to manage international funds or find small emergingcompanies is even greater. Can higher expenses 'buy' better managers? Sometimes.The most talented managers should make more. What you reallywant to know is if the extra expense is worth it. The best wayto see if a fund really deserved a higher expense ratio is tosee how they've performed in direct comparison to other fundsand the market. If they've done a better job on a regular basis,the higher expenses shouldn't bother you. Conversely, if theyhaven't outperformed, find another fund. How am I charged with the expenses? Is it on my quarterlystatement? Unfortunately, you'll have to do a little bit ofdigging to find out how much of your money the fund spent. It'snot found on your statement. You'll need to go to the fund'sincome statement in the quarterly report to find the answer.Most people toss the report without looking at it. A number of industry 'watchdogs' are pushing to have fundexpenses shown on your fund statement. They argue that ifpeople knew how much they were spending on expenses there wouldbe more pressure to control the cost. Fund managers counterthat the increased cost of collecting and reporting thatinformation would only increase the expenses. How do expenses affect my earnings? They're subtractedbefore you see your earnings. If a fund earns 10% and theexpenses are 1.2%, you'll see a return of 8.8% (10.0 minus 1.2equals 8.8). That's not so bad when markets are going up, butremember that the expenses go on even if a fund is losingmoney. A half-percent difference in expenses can seem huge ifyour fund is only making a couple of percent. Are 'big funds' less expensive than smaller ones? Yes,but not by as much as you'd think. Obviously, it doesn't costtwice as much to manage a fund that's twice as big. But youneed to remember that the mutual fund companies want to make aprofit, too. All of the savings of a big fund don't come backto you. Some of that savings goes to the fund company asadditional profits. What should I look for when I consider fund expenses?Look for two things. First, how does the fund's expense ratiocompare to other similar funds? If it's higher, check to seeif it's justified by performance. Don't forget to make surethat the manager that produced the past performance is stillmanaging the fund. Second, if the fund is part of a family, take a look atthe average family expenses, especially if you're buying a loador 12b-1 fund. You may want to switch to a different fundwithin the family some day. That could be less attractive ifthe whole family has higher expense ratios than the average.And there's quite a bit of difference in average familyexpenses. Some have a ratio of less than 3/4 of a percent andmany others are over 1.5%. One final thought. You do need to keep all this inperspective. In some ways it's the same as deciding to orderpizza. How much time and money would it take you to make thepizza? Is it a good value? Unless you're really into trackingand researching stocks, you may be getting a pretty good dealfor your one percent or so. That doesn't mean that youshouldn't consider expenses in picking funds; just rememberthat it's only part of the equation. Gary Foreman is a former Certified Financial Planner who currents publishes The Dollar Stretcher website http://www.stretcher.com/save.htm. Permission granted for use on DrLaura.com More >>

Nearly Retired The Dollar Stretcher By Gary Foreman Gary@stretcher.com Help!I am 50 with no savings!! How can I start? Need any and all advice. Thanks, Dinah Dinah sure has a lot of company. Recent Congressional research showed that only 40% of workers have a plan in place for retirement. Even among those over age 55, only 47% had retirement accounts. And the median value of the account was less than $25,000. So a lot of people need to begin saving for retirement. The first step for Dinah is to try to get an idea of how much money she'll need. If she's among the two thirds of Americans who expect to continue in her current lifestyle after retirement, she can expect to need about 80% of her preretirement income. That's a surprise to many people. Where will she find that much money? Dinah should begin by finding out about any existing plans she may have through past or present employers. Even if she doesn't have any private company pension, she'll be eligible for social security. To find out how much she'll receive call the Social Security Administration at 800-998-7542. Ask for the Personal Earnings and Benefit Estimate Statement. Once Dinah has some idea of how much income she'll need and what's already available she can calculate how much additional she'll need to provide. For illustration, let's assume that she'll need an extra $10,000 in income each year. How much will she need to save to get that income? We could go through a lot of discussion and complicated formulas. Whole books have been written on just this subject. But for our purposes, I'd assume that Dinah should be able to safely get about 7% in income from her savings each year. That's a realistic, conservative long-term rate. To find out how much savings will be required to generate the income, just divide the income desired ($10,000) by the rate of return (7% or 0.07). In this case Dinah would need about $143,000 to produce $10,000 in income each year after retirement if it earned 7%. So how does Dinah begin to save that much money? Much of what she'll need to do is the same as if she were beginning any saving program. Begin by setting some goals for her savings. Can Dinah manage to save $5 each week? Begin with something simple. She might not know where to find an extra $5. She'll need to take a look at her habits and see what she can change that will make $5 available each week. It will almost certainly require her to change some habits. Start today. Even if she can only save 50 cents this week, that's better than nothing. And if she does the same or better next week a new habit will be starting. Sure, more is better. But actually saving 50 cents is better than complaining that you can't save $5. Once Dinah begins to save some money she'll need to decide where to keep it. Here the goals are safety and growth. Begin with a separate saving account. Once Dinah has put money into the account it should stay there unless she's moving it to an investment account that's earmarked for her retirement. After she has accumlated some money in the savings account she should periodically move some of it to a no-load, growth mutual fund. There are a number of excellent ones available. Historically a fund of this type will earn nearly 10% per year over the long haul. Dinah should contribute to a tax deferred retirement plan. If she is eligible for a 401k plan she should sign up. Also begin contributing to an IRA. Her money will grow much faster if she doesn't have to pay taxes on the earnings each year. Dinah should learn some of the investment basics. Your potential risks and rewards differ with various investment choices. Learn the differences and which would work best for you. It's really not that complicated. The important investment concepts are easy enough to understand. There are local adult ed classes, online courses and even books that can explain the basics. Dinah is smart to get started now. Yes, earlier would have been better. She might have started too late to guarantee a comfortable retirement. But she can still make a significant difference in her future standard of living. Gary Foreman is a former Certified Financial Planner who currents edits The Dollar Stretcher website www.stretcher.com/save.htm Permission granted for use on DrLaura.com More >>

Refinancing and Your Credit Score The Dollar Stretcher by Gary Foreman www.stretcher.com gary@stretcher.com I purchased a 1999 Buick Regal right before Thanksgiving. The loan was for a 14.5% interest rate. I was told that I should wait at least one year before refinancing. If I did otherwise it would look bad in my credit for not staying with this company for at least a year. I am interested in shopping around to see if I can get a lower interest rate, but am uncertain due to the information that was given. Should I shop around or wait until a year has been completed? Lillian Like many of us, Lillian is concerned with her credit score. And, she should be. Not only will her credit score affect how much she'll pay to borrow money, in some cases it can make getting credit difficult or impossible. Before we look at Lillian's question, we need to learn a little more about credit scores. The largest supplier of credit scores is Fair, Isaac Co (FICO). The score is designed to give potential lenders an idea of how likely you are to repay a loan. FICO has demonstrated that a lower score does correlate to a greater probability of default. FICO scores range from 400 to 900. About 700 is considered average. The exact formula used is a FICO secret. But they do provide an idea of what things go into the formula and how much weight each category is given. That should be enough to help Lillian with her question. The advice given to Lillian is true, but probably not as important as she was led to believe. The longevity of her accounts only makes up 15% of her credit score. And that's for all of Lillian's accounts. The score will include the oldest account she has and also the average of all accounts. So closing one account early by refinancing really shouldn't make a big difference in her score. Her average will dip slightly, but unless her score is 620 or below that shouldn't pose a problem. The biggest determinant of Lillian's score concerns how good she's been about paying her bills on time. 35% of her score reflects her promptness in bill paying. The amount that Lillian owes will determine 30% of her credit score. Naturally potential lenders feel more comfortable if she owes less money. Accounts that are close to their limit will lower her score. Ten percent of the rating is based on Lillian's pattern of credit use. The 'pattern' considers how many of her accounts are fairly new and how many potential creditors have asked for her history. People with debt problems often try the same tactics. The FICO formula attempts to identify those people. The final ten percent evaluates the types of credit that Lillian is using. The types of accounts, mix of accounts and total number of accounts she has are included. Loans with finance companies will reduce her score. More than one company provides credit scores to potential lenders. Your score will not be the same with each provider. We've used the formula from FICO for this discussion. Other formulas are similar. Now back to Lillian's question. She didn't mention who told her to wait. It is possible that the person who gave that advice stood to make more money if she delayed. So what should Lillian do? The first thing is to get a copy of her credit score. Next she should check and make sure that the information is accurate. Studies indicate that about one in four reports contain serious errors. Those errors could reduce Lillian's credit score and increase the amount she'll pay to borrow money. She can obtain her score at www.myfico.com . Unless her score is below 620, she shouldn't have to worry about refinancing now. A healthy credit score won't drop much for one account. And any drop wouldn't affect this refinancing. If Lillian manages her credit properly it won't be important the next time she goes to borrow money either. Once she's verified that the information is accurate, she should begin to look for lower cost financing. Identify two or three potential lenders. She'll want to contact them one right after the other. Each lender will obtain her credit score. If all those requests happen over a few days they'll be treated as one event. If they trickle in over months, they'll tend to decrease her score. It is possible that she won't find cheaper financing. But the only way she'll know that is if she checks some competing lenders. Gary Foreman is a former financial planner who currently edits The Dollar Stretcher website: www.stretcher.com where you'll find hundreds of time and money saving ideas. Permission granted for use on DrLaura.com. More >>

Comparing a Refinance The Dollar Stretcher By Gary Foreman Gary@stretcher.com Dear Gary, My husband and I want to refinance our mortgage and add a credit card debt. We owe $44,000 on our mortgage at a rate of 7 1/8% and we have 11 years left. We want to add a credit card debt of $17,000 at a rate of 9.99%. The best mortgage rate that I have been able to find is a 15 year fixed at 6.25% with a fee of $1161 and no points. Would we be wise to refinance? Thanks. I hope you can help me with the answer or point me in the right direction. Lynn O. You don't need to be refinancing your home to ask this question. We face the same problem with competing credit card or auto financing offers. And many of us have a similar reaction. There's just too many numbers to even know where to start. So we end up with something that could be costing us extra money every month. Let's break Lynn's question down into bite sized pieces and see if we can't simplify things. We'll look at a method that you can use to compare any two loans. First we'll figure out what Lynn is paying in interest each month on her current mortgage and credit card balance. Then we'll calculate what the new loan would cost her in interest. Then we'll compare the two and see how long it would take to recover the fee. Begin with the existing mortgage. Lynn has a $44,000 mortgage at 7.12%. We'll do a monthly comparison. If we take the annual interest rate (7.12%) and divide it by 12 we'll find out what the rate is each month. It works out to 0.59%. To calculate how many dollars that equals to each month we'll multiply the mortgage principal amount ($44,000) by the percent interest (.59% or .0059). It works out to $260 in interest charges. Now for Lynn's current credit cards. She has a balance of $17,000 and is paying 9.99% interest. The process is the same as for the mortgage. We're going to take the annual interest and convert it to a monthly rate. In this case that's 0.83%. Then we'll multiply the balance by the rate ($17,000 x 0.0083) to get the monthly interest owed ($141). So, between the two bills she's paying $401 ($260 + $141) each month in interest payments. How would a new mortgage stack up? Well, since she wants to add the credit card debt to the existing mortgage, the refinanced mortgage would be $61,000 ($44,000 + $17,000). Now that we know the principal, let's calculate the monthly interest. Again we'll take the annual rate (6.25%) and divide by 12 to get the monthly rate (0.52%). Then we'll multiply the mortgage balance by the monthly rate ($61,000 x 0.0052) to get our monthly interest amount ($317). Now we're in a position to compare how much the two loans would cost. The new rate would save her $84 each month in interest ($401 - $317). But, as Lynn pointed out, there's a fee of $1,161. Is it worth paying that fee to get the monthly savings? If we divide the fee by the monthly savings we'll see that it would take nearly 14 months for Lynn to save enough to recover the fee. Now I'm sure that those of you who are good with math have probably found a few flaws in our method. The main problem is that all three balances will change a little each month. So to be perfectly accurate we'd need to do a separate calculation for each month. And then adjust our account balances and do it all over again. And again, etc. But that really shouldn't be necessary. Predicting the future isn't an exact science. So even if our calculations were precise, the future wouldn't be. This method will give Lynn a pretty fair estimate. Certainly good enough to make a decision. There are other things to consider. Payments may be different than the amount of interest owed. The new interest owed each month is like money that Lynn has spent. In this case she bought some borrowed money. Her payment would typically be the amount of new interest plus some of the principal amount owed. She doesn't want to confuse the two and sign up for a payment that she can't afford. Also, rolling credit card debts into your home mortgage isn't always a good idea. There can be a temptation when you see an account balance of zero. Many people will run up the balance again. And that would defeat the purpose of putting the credit card balance in with the mortgage. From this point Lynn should be able to compare the two choices and make a reasonable decision for her family. We hope it's a good one for her family. Gary Foreman is a former Certified Financial Planner who currently edits The Dollar Stretcher website www.stretcher.com/save.htm . You'll find hundreds of free articles to stretch your day and your budget. Permission granted for use on DrLaura.com More >>

Trouble Getting Mortgage The Dollar Stretcher by Gary Foreman gary@stretcher.com Dear Dollar Stretcher, Several years ago I was told that I would have to file for bankruptcy. I did see an attorney and he suggested I wait until after I got divorced. I told my creditors that I was planning to file for bankruptcy after my divorce. I was not happy with the attorney during my divorce and never filed for bankruptcy. It has been almost five years now and my debt has been written off and no creditors are bothering me. I'm trying to get my life back in order but I'm still struggling. I need a place to live. With rents so high I could pay a mortgage on a small condo for the same amount. This is what I would like to do but I have the debt issues hanging over my head. I'm a 46 year old single parent raising two elementary school age children. I feel like I'm going to end up living my old age in a cardboard box. I also feel like my life is in limbo and there's no way out. Can you offer any advice? Sally It sure would be nice to tell Sally that there's an easy solution for her problem. But unless she has a wealthy friend or relative willing to step in she'll need to have patience, expend some effort and be willing to make some hard decisions. Only time will clear Sally's credit history. Generally negative information will remain on your report for seven years. Or 10 years for a bankruptcy. There's no legitimate way to erase truthful information quickly from her history. Being careful to meet her current payments will help improve her score over time. But, Sally may still be able to get a mortgage if her credit score is in the low 600 point range. She can expect to pay a higher interest rate. A sizeable down payment will make finding a mortgage easier. In Sally's case that might not be possible. The only way to find a mortgage company willing to work with her is to search for them. That means making phone calls and telling her story. Sally needs to be careful in applying for a mortgage. If a large number of potential lenders check her credit history that will make it look like no one is willing to lend her money. She can avoid that problem by explaining her situation before they check her history. Some will turn her down right away. They would have refused her anyway. At least now they haven't lowered her credit score. One way to find the best potential lenders is to work with a mortgage broker. They should be familiar with the institutions that are most likely to work with Sally. Again, she needs to be up front with the broker about her past. Also make sure that he's going to limit access her credit file. Other options could work for Sally. The first is renting with an option to buy. A landlord/seller will still want to know about Sally's finances. But, typically they won't be quite as critical as a regular mortgage company. It would also allow her to continue to rent while she's trying to find a mortgage. Another option would be to find a condo being sold by someone who's willing to take back the mortgage. Sally is right about condo prices. In many places condos are relatively inexpensive. That also means that she's more likely to find a seller who has had trouble selling. It might be enough to get one to finance the deal for Sally. One other possibility would be to see if there are any assistance programs that could help her. Habitat for Humanity is one. There are others. Most are run locally so she'll need to speak with her community social service agencies and churches to find them. Just finding a home and qualifying for the mortgage isn't the only thing that Sally needs to watch. She must be careful to only spend what she can afford. Between food, auto, medical and insurance Sally will probably have close to 50% of her after-tax income committed. So if she spends an additional 30% on housing that only leaves 20% for clothing, entertainment, savings, debt reduction, after-school programs, unexpected emergencies and savings. Others may tell Sally that she can afford to spend more. She should ignore them. They won't be the ones sweating the mortgage payment each month. There are ways for Sally to reduce her housing costs. One would be to share a house or a larger apartment. In many places it's difficult to provide for a family on one income. It's harder still if there's only one parent because they're too busy to do some of the time consuming things that can save money. Taking in a roommate could help solve that problem. Two single moms could blend a family and both would be better off financially. With two adults to share cooking, cleaning and other household chores Sally would also have a little more time to enjoy her children. Naturally Sally would need to be very careful in finding the right person. They will influence her children at an impressionable age. So she'll want to know the person well before anyone starts packing and moving their belongings. Sally's past will make her future more difficult. Hopefully she'll find the right combination to allow her to build some equity and keep her housing expenses in line with her income. Gary Foreman is a former Certified Financial Planner who currently edits The Dollar Stretcher website www.stretcher.com/save.htm . copyright 2001 Dollar Stretcher, Inc. Printed with permission. All rights reserved. More >>

Space Heater Efficiency The Dollar Stretcher by Gary Foreman Hi Gary, Here's a heating question. I'm someone who really likes to be warm. If you can believe it, I grew up in a house that was kept at 75 degrees in the winter. I'm trying to adjust to a cooler house as an adult but it's not easy! Anyway, here's the question. Which is more efficient, using my electric space heater/fan which requires about 1000-1500 watts, or turning up my relatively new, gas-powered, forced air furnace to heat up a good sized two bedroom apartment? I've already done as much insulating as I can. I'd really appreciate it if you could help me figure this out! Connie As someone who's lived in Florida for years I can appreciate Connie's desire to keep warm! At the same time it's also important to find ways to do that without watching your energy bills go through the roof. Her inclination is right. As a general rule, if you're only going to be in one room it will be cheaper to heat that single room than the whole apartment. And a space heater is often a good choice. First, some warnings. Electric space heaters can overload an electrical circuit. Be careful to avoid problems. No matter what type of heater you use remember to take all appropriate safety measures. Proper inspection and use are important. Protect your family from shocks, fires and asphyxiation. Safety should always come first. Next, let's look at Connie's comparison. Unfortunately, getting an exact answer isn't easy. To figure out the cost of operating a space heater you need to multiply the kilowatts used per hour times the cost per kilowatt hour for electricity. Multiply that by the length of time that the heater is actually on. You can get the kilowatt hours by dividing the wattage by 1,000. Your electric bill should show you how much you pay per kilowatt hour. Electric space heaters do not lose any energy through ducts or combustion. So they're considered to be 100% efficient. All of the warmth generated by the space heater will radiate into the room. Here's where it gets more difficult. To know how much it costs to operate her gas furnace she'd need to know how energy efficient the furnace is. Most convert between 55 and 85% of the gas used into actual heat. She'd also need to know the furnace's rate of fuel consumption and the cost of fuel in her area. If that wasn't enough Connie would also need to account for the loss of heat in her ducts. Depending on the insulation and condition of the ducts she could be losing a major portion of the heat generated by the furnace before it gets to the rooms. Finally, she'd need to convert both the space and central heaters to a common measure of heat. The most likely candidate is BTUs. And, there's no easy way to do that for either of the two heaters. But that doesn't mean that some comparisons can't be drawn. The U.S. Dept. of Energy estimated that an average conventional gas system cost 43% as much as a space heater when heating a whole house. So on average the gas central system is more efficient. No, she shouldn't throw out the space heater. Let's keep it in perspective. It still makes sense for Connie to use the space heaters to boost the temperature in one or two rooms of her home. And not knowing the exact cost shouldn't keep her from getting the most heat for her dollar. Her strategy is fairly simple. Her first step should be to lower the thermostat for the central gas system to the lowest comfortable level. If she's only using one or two rooms, she should lower it some more and use space heaters to warm up the room she's using. Connie can also manage something called her 'thermal comfort'. What's that? In it's simplest form it means that the coldest part of your body will determine how cold you feel. Proper management of thermal comfort could allow her to lower the thermostat by 8 degrees without feeling any colder. And that could save 15% of her heating bill. So Connie will want to eliminate drafts and places where her skin is exposed to the cold. It turns out that Mom was right. You should wear warm stocks and a turtle neck sweater in winter! Connie has already taken steps to add insulation. Another possibility is to add weather-stripping. In many homes if you add up all the cracks it's as if a window were left wide open letting out heat all winter long. Not only that, the cold air coming in lowers the thermal comfort. Connie's well on her way to getting the most for heating dollar this winter. All she needs now is a cup of hot chocolate! Gary Foreman is a former Certified Financial Planner who currently edits The Dollar Stretcher website www.stretcher.com/save.htm . You'll find hundreds of free articles to stretch your day and your budget. Permission granted for use on DrLaura.com. More >>

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The Bottomline of Becoming a Millionaire A man goes into the pet store to buy a bird.1 He sees dozens of caged birdswith little price tags dangling from their little legs; $5, $5, $5, $50. "Fifty dollars!" He asks the clerk, "What so special about this one?" Theclerk explains that this bird is special because it can talk. So the manbuys the bird and takes it home. The next day the man returns. "The bird didn't talk." The clerk asks, "Did he look in his little mirror?" "Little mirror? I didn't buy a mirror. Does he need a mirror?" "Of course," replies the clerk. "He looks in his little mirror and seesanother bird in there. He thinks he's not alone and starts to sing. Startsto talk. Got to have a mirror." This sounds reasonable so the customer buys a mirror and leaves. The nextday he is back again, disgruntled. "The bird looked in his little mirror. But he still didn't talk." "Well," ponders the clerk, "Did he run up and down his little ladder?" "Ladder? Does he need a ladder?" "Of course," replies the clerk. "Don't you feel better after you exercise? Your bird runs up and down his little ladder-those endorphins start pumpingin his little brain. Makes him want to sing. Makes him want to talk. Gotto have a ladder." This sounds reasonable so the man buys a mirror. The next day he is backwith a scowl on his face. "The bird ran up and down his little ladder. Helooked in his little mirror, but he still didn't talk!"The clerk asks, "Did he swing on his little swing? You see, when the birdswings it makes him think he's back in nature. Makes him want to sing. Makes him want to talk." The customer grudgingly buys the swing. The next day he is back again,angrier than ever. "The bird swung on his little swing. He ran up and downhis little ladder. He looked in his little mirror. But he still didn'ttalk!" "Hmmmm," thinks the clerk. "Did he tinkle his little bell?"The customer grabs a little bell, throws some money on the counter and stormsoff. The next day he is back again. "The bird's dead!" "Dead!?" "Yup. Dead-his little feet sticking up in the air. But he did talk. He gotup this morning and looked in his little mirror. He tinkled on his littlebell. He ran up and down his little ladder. He swung on his little swing. Then, just before he keeled over and died, he looked over at me-a little tearforming in his little eye-and he finally spoke to me. "What did he say?" He said, "DIDN'T THEY SELL BIRDSEED?!!!" When it comes to making money people will try to sell you a lot of bells andwhistles-but the 'birdseed' of money can be summarized into three keyconcepts: Building a Dream. Attracting a Team. Choosing a Stream. Charles Jarvis, the great American Humorist, tells this classic story. A dollar a day#151;a minute at a time#151;you can get there. Contact Robert G. Allen at boballen@robertallen.com or visit his website at www.robertallen.com Permission granted for this excerpt from the forthcoming blockbuster, The One Minute Millionaire with Mark Victor Hansen; Permission granted for use on DrLaura.com. More >>

Harassing Collection Calls The Dollar Stretcher by Gary Foreman Dear Dollar Stretcher, My husband and I have one credit card debt to the tune of about $3,500. I cancelled the account so we can't charge any more. We have been making payments of $100 every month, which is well below the minimum payments that the credit card company requests. They call nearly every day, most often more than once, hounding us for the rest of our minimum payment, which has reached in the neighborhood of $800 a month. Although we are not paying what they request every month, we are making a payment. Is there any way we can stop the phone calls? Are we breaking the law by not paying the entire minimum payment? We do plan on making a large payment when we can, but with 3 kids and one income, $800 is hard to come by. Thanks for any help. Tina Tina's not alone. In calendar 2000 the average U.S. credit card debt per household was $8,123 according to Cardfacts.com. The American Bankers Association indicates that 5.4% of credit card accounts were delinquent at the end of the year. Recent reports show that there was a surge in bank card delinquencies in the 2nd quarter of 2001. So a lot of people are falling behind in their payments and will be dealing with bill collectors. In fact, in 2000 the FTC received approximately 22,000 complaints about both 'in house' and 'third party' collectors. To answer Tina's first question, yes, she can stop the collection calls. The Fair Debt Collection Practices Act prevents harassment by bill collectors. It is a federal law so it applies to all 50 states. Section 806 specifies that "a debt collector may not engage in repeated personal contacts with a consumer with such frequency as to harass him". If Tina notifies the collector in writing that she wants all communications stopped, they must cease any attempt at contacting her. This includes both phone and mail contact. She would be wise to get a return receipt so that she can prove that her letter was received by the collection agency. Some bill collectors are persistent despite the law. According to the Federal Trade Commission approximately 500 consumers complained that notifying the collectors didn't stop the calls. If Tina has this problem she can get relief by contacting the FTC (1-877-FTC-HELP). Tina didn't mention it, but collection agencies are also prevented from telling others about her situation. Nor can they threaten her with physical violence. To answer Tina's second question, she has not broken the law so she won't end up in jail. But she has not lived up to the contract that she made with the credit card company. Notifying the collection agency to quit contacting her does not prevent the credit card company from trying to collect the debt. In fact, they may be more likely to file a law suit if Tina asks to be left alone. That suit could require repayment or force bankruptcy. So getting the collection agency off her back is only the first step for Tina. The $3500 debt is costing her over $800 per year in interest. And each month that her payment is less than the minimum a penalty is tacked on. Her $100 payment isn't really reducing the debt. Now is the time to take drastic action. At her current rate of payments Tina will be repaying this debt forever. She needs to recognize that the longer this goes on without a solution the worse her credit score will be. She could get in a situation where it's almost impossible to borrow money to buy a car or home for many years. So getting the collection calls to stop is only the first step. In fact, it's the easier step. The bigger challenge is to get the debt current so she doesn't hurt her future borrowing ability. Hopefully Tina and her husband will find a way to put this debt behind them. Gary Foreman is a former purchasing manager who currently edits The Dollar Stretcher website www.stretcher.com/save.htm You'll find hundreds of free articles to help you save time and money. Visit today! More >>