What to do if your wages are garnished

— If you’re falling behind on your debts, beware: You don’t want to end up one of the millions of Americans who get their pay garnished.

To avoid being hit, call your creditor or the firm collecting the debt and try to negotiate a payment plan, said Robert Hobbs, senior fellow at the National Consumer Law Center.

Explain the details of your financial situation and propose an amount that you can realistically pay each month.

If that doesn’t work and the creditor decides it wants to seize your wages, it generally needs to get a court order first. That means you have the right to appeal.

Look at the judgment and make sure everything is correct.

For example, if you moved residences and the judgment was served at your former residence, that could be grounds for stopping the garnishment.

If you see anything incorrect, consult a lawyer. This directory of attorneys specializing in garnishments from the National Association of Consumer Advocates is a good place to start.

If the judgment is correct, it may be a good idea to pay off the debt using a low interest loan. Taking a loan with a 5% interest rate to pay down credit card debt with a 36% interest rate could make a lot of sense, Hobbs noted.

And be sure that you’re not being garnished more than is allowed.

Under federal law, creditors can garnish a maximum of 25% of earnings or the amount of disposable income that exceeds 30 times the minimum wage — whichever is smaller. Read more about your rights on the federal level here.

Some states also have rules that provide stricter limits, so check with your state department of labor. Benefits like Social Security and welfare are generally exempt from garnishment as well.

If all else fails, the last resort could be to file for bankruptcy. You can’t discharge some kinds of debt in bankruptcy, like certain government debts. But you can probably get the wage withholding stopped.

The National Association of Consumer Bankruptcy Attorneys has a directory of lawyers.

“The most common reason people go bankrupt is because of a garnishment,” said Hobbs. “It’s not something to be done lightly, but it can get rid of most judgments.”

Grads with more debt are less happy

— Student loan debt isn’t just hurting college grads financially, it’s also having a negative impact on their overall well-being.

College graduates without any student loan debt were seven times more likely to be happy and thriving in most areas of their lives compared to those with more than $40,000 in debt, according to a Gallup-Purdue University study.

To measure well-being, the survey asked more than 30,000 grads about their sense of purpose, happiness within their community, social lives, finances and health — with questions about whether grads like what they do every day and if they have enough money to do what they want.

“The amount of student loans that graduates take out to pay for their undergraduate degree is related to their well-being in every element,” the study states. “The higher the loan amount, the worse the well-being.”

Student loan debt impacts graduates in other ways, too. Graduates with large debt burdens were significantly less likely to start businesses, for example.

Contrary to the thinking of many families these days, the kind of institution a graduate attended — its size, selectivity or whether it was private or public — had little impact on their future well-being and workplace engagement, the study found.

What did matter, however, was the experiences graduates had while in college.

Getting support from professors who cared about them and encouraged them to learn and follow their passions, having internships or jobs while in school, working on long-term projects and being involved in extracurricular activities all contributed to more positive post-college experiences.

Yet only 3% of students reported having all of these positive experiences.

“Those elements — more than many others measured — have a profound relationship to a graduate’s life and career. Yet too few are experiencing them,” the study states.


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Buyer beware: Retail cards have costly trap

— As you stock up on Black Friday deals and holiday gifts, beware of tempting credit card offers from retailers that appear too good to be true.

Many retailers advertise credit cards with an introductory 0% interest rate, which can be a great deal if you pay off your balance in full before the offer period expires. But if you don’t, and even if you’re only short a couple of dollars, some retailers will charge you what is called deferred interest and retroactively apply the full APR to your entire original balance — not just the amount that wasn’t paid back on time.

It’s “as if you never had an interest-free period to begin with,” and the average APR charged is a whopping 25%, according to CardHub.com, which analyzed the financing options from 50 of the largest retailers.

Say you open a credit card offering 0% interest for six months that will default to 20% once the introductory period ends. By the end of the six month period, you only pay back $799 of the $800 you spent, and don’t pay off the full balance until the next month. If the card carries a deferred interest option, you could end up paying an extra $55, whereas a traditional credit card offer would leave you with $2 in interest, according to CardHub’s analysis.

“When consumers see a no-interest offer, they tend to take that at face value, thinking they’re gaining a true respite from finance charges for the advertised length of time,” said CardHub CEO Odysseas Papadimitriou.

CardHub found that 42% of retailers that offer financing options charge deferred interest and 41% of those stores aren’t transparent about the terms. Only 29% of retailers who charge deferred interest provide clear terms and put key information, like the APR they charge once the introductory period ends, in an easy-to-find location.

Retailers charging deferred interest include Amazon, Apple, Lowes, Walmart, Pottery Barn and Macy’s, according to CardHub, which scored each retailer individually on its policies.

“We all know that too few people truly read the fine print of financial agreements, which means most folks won’t find out that they have signed up for deferred interest until their costs are suddenly inflated,” said Papadimitriou. The average household already has $6,700 in credit card debt… we don’t need hidden costs adding to our problems.”

Millions without credit scores not so risky after all

— Millions of Americans don’t have credit scores. And while lenders typically steer clear of this group, it turns out they aren’t always as risky as banks think.

There are at least 64 million “unscoreable” consumers out there, estimates Experian, one of the three major credit bureaus. These consumers are often immigrants or recent college grads who have little to no credit history or they are people who haven’t had an active credit account for at least six months. They may be completely responsible or they could be financial train wrecks waiting to happen — lenders have no easy way to tell because there is no credit score available.

Credit scoring company, VantageScore, is trying to shed light on this mysterious group with its newest scoring model, which it estimates can assess an additional 30 to 35 million people who were previously unscoreable. It does this by looking at 24 months of credit history, rather than six months, and by considering alternative data like rent and utility payments and public records when available.

“The unscoreables are a big population and in today’s rather conservative credit climate they’re having a hard time finding mainstream credit,” said VantageScore CEO Barrett Burns. The VantageScore model was created by the three major credit bureaus — Experian, Equifax and TransUnion.

VantageScore found that 10 million, or about a third of unscoreable consumers, aren’t high risk at all — instead, they were determined to be near-prime or prime. Burns calls this the “sweet spot” for lenders, because it means a consumer isn’t so risky that a lender would lose money taking them on as a borrower and they’re not such low risk that a creditor is forced to reward them with the best terms available.

The largest groups of unscoreable consumers hold professional jobs or are retired, more than 40% are homeowners, and income distribution is in line with the consumers who do have scores, according to VantageScore’s research.

“It really surprised me at how good looking these consumers are — from job characteristics to home characteristics,” said Burns. “I don’t believe any of us knew how big this audience was and how attractive they are.”

Burns said most of the nation’s biggest lenders are already testing the new model.

This could be a major untapped market for lenders, said John Ulzheimer, credit expert at CreditSesame.com.

“If you told a lender out there, ‘hey, we flipped over a rock and found 35 million new customers,’ they would be very interested, and that’s what VantageScore is doing,” said Ulzheimer.

The issue is getting other scoring companies to follow suit. FICO, the most commonly used score by lenders, still only scores people who have had active accounts within the past six months.

“Until other scoring models look at more credit history or use other ways to score, there’s going to continue to be a large number of people who don’t have scores under the models used by lenders and will therefore be denied credit,” said Ulzheimer.

But FICO says it is able to score nearly 95% of consumers with thin credit files and 75% of consumers with no credit files by looking at alternative data like bank accounts.

While new scoring models can help millions land loans and better rates, the best way to ensure you don’t get denied is to start building credit on your own, said Ulzheimer.


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Young Americans are ditching credit cards

— The number of young Americans who are living without credit cards has doubled since the recession, according to new research.

About 16% of consumers ages 18 to 29 didn’t have a single credit card by the end of 2012 — up from 8% in 2007, according to data that credit score provider FICO collected from the credit files of millions of consumers.

As a result, credit card debt has declined by about a third among this age group — from an average $3,073 to $2,087 per person.

After watching older generations — like their parents — get hit hard by the recession, many younger Americans are shying away from credit and opting for debit cards instead, according to FICO.

Prepaid cards have also become attractive alternatives, said John Ulzheimer, president of consumer education at SmartCredit.com.

“[T]here has been very aggressive marketing of prepaid debit cards over the past few years targeting young people and minorities,” he said. “So it’s not a surprise that more young people are using prepaid debit cards over credit cards.”

In addition, the CARD Act, which took effect in 2010 and requires consumers under age 21 to have a co-signer or to earn enough income to make full payments, has also made it harder for this group to qualify for credit cards, FICO found.

Along with credit card debt, overall debt has fallen among this younger group. Even with the surge in student loan debt, this younger group has seen an even more rapid decline in other debts like mortgages. And this shedding of debt has translated into higher credit scores, with the number of consumers 18 to 29 years old with excellent FICO scores of 760 or higher jumping from 8.6% in 2005 to 11.2% last year.

Older Americans are another story, however. While they also lowered their credit card debt, they racked up more auto and mortgage debt.

Consumers 40 and over therefore have more overall debt today than they did in 2005. And as a result, FICO scores have fallen 1.7 percentage points among the 40 to 49 age group, 1.8 percentage points for those ages 50 to 59 and 3.8 percentage points for consumers 60 and older.

“[P]arents are having to take on more debt to help their kids make ends meet,” said Ulzheimer. “And, thanks again to the CARD Act, more parents are being asked to co-sign for their younger non-working children who want a credit card.”


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