Mind on My Money: Black Personal Finance 101
Dirty Little Secrets
Banks/Credit Card Companies
How Much Do They Make on Those Fees?
By the best estimates of industry watchers, credit card companies make as much as 30% of their PROFIT from fees. That's right, the $39 late fee; the $29 over the limit fee; transaction fees; annual fees, ect. They all find their way into the deep pockets and trust funds of overpaid bank executives.
How Much Do They Pay for My Debts?
So you've received a letter or several calls from a Collections Agency telling you that you now owe them the money that you never paid to the original creditor.
They call you 4,5, 10 times a day. The letters become more and more threatening. First you are nervous, then as time passes, you kind of just ignore it hoping it goes away. And one day it does...only to pop back up a year or two down the line. What happened?!!
Simply put, there is big money in bad money. Debt collections as an industry is expected to process $143 BILLION in face value of delinquent debts this year. And the potential for profit is staggering.
Debts that have not been charged off by the original creditor, but that are delinquent can be purchased for 12 cents on the dollar. If an account has been charged off, it can sell for 7-9 cents on the dollar. Older debts that other collections agencies have attempted to collect on can sell for 1-3 cents on the dollar. And just when you thought they had left you alone for good, another collections agency purchases that years old debt in bulk for less than 1 cent per dollar owed.
Because this old debt is by far the cheapest, it is also the most profitable, and the source for most of the abusive tactics employed by the more aggressive collections agencies.
This is important to know because a consumer that understands their rights, as well as how their bad debt is traded similar to a commodity, can better understand how to manipulate the system for their benefit.
Credit Repair Organizations
What Do They Really Do For Me?
The real answer is: A whole lot of nothing that you couldn't do for yourself.
Many of the tactics used by credit repair organizations are available by law to your to do yourself. Now, there are those who are aware of how to clean up their credit, but don't want to be bothered to undertake the process themselves.
The truth is, ensuring your credit report is accurate is a simple, but time consuming affair. If you find out what you're getting into, yet you still want to sign on with one, then at least you are a consumer going in with eyes wide open.
But if you are drawn in by the hype and marketing, save your money. A majority of consumers get little to no results, but end up being out 100% of their money. Often these modern day snake oil peddlers over promise and under deliver.