Dave Ramsey Credit Sharks in Suits (Class 5 of 13)

This class deals with identity theft, dealing with collection agencies, strategies for avoiding bankruptcy, and dealing with credit related lawsuits. The Financial Peace University workbook provides a large number of legally correct sample letters for use in these situations.

He begins by debunking the importance of a FICO score. In fact, it has been so long since Dave Ramsey has borrowed any money or even used a credit card, he doesn’t have a FICO score. A FICO score is a measure of how much debt you carry and how diligent you are at paying it off. Too much debt, the FICO score goes down. Too little debt, the FICO score goes down. Dave points out that you can even buy a house without a credit history. If you have 20% down, a history of paying your rent on time, and the same job for two or more years you are golden.

Everyone seems to recommend checking your credit reports at least once a year for any inaccuracies. A recent study indicates that about 70% of individual credit reports contained at least one error. About 25% of these reports contained a serious error that could result in a denial of credit. Dave warns the viewer that true information can not be removed from a credit report. Companies that promise they will “clean up” your credit report for a fee are scams. Stay away.

Identity theft has become a major problem. If this happens to you, report it immediately to all financial institutions with whom you do business and the credit bureaus. Also file a police report. Since a high percentage of identity theft is committed by friends or family members, this may prove emotionally difficult. Dave Ramsey points out that if your mother forges your name on a check, turn her in. She is a criminal. Undoing the damage will take time. All correspondence of a legal nature in any of these scenarios should be handled by certified mail with return receipt requested. Sample letters are provided to have information of fraudulent activity removed from your credit report in 30 days. Dave also recommends identity theft insurance, which will be discussed in depth in a later class.

Dave Ramsey considers collection agencies to be near criminal enterprises. They constantly violate the terms of the Federal Fair Debt Collection Practices Act. Throughout this lesson, Dave repeats a warning, “You can tell when these people are lying. If their mouth is moving, they are lying.” Dave does expend some effort to separate bill collectors into categories.

1)First Mortgages—Collection agents who deal with first mortgages tend to be professional. They do not violate the law or make idle threats. If they tell you something it is likely to be the truth.
2)Local Collection Agencies—These small companies are located in your community and work for local merchants and businesses. They are pretty responsible and tend not to engage in unfair or illegal practices.
3)Store Front Finance Companies—Bad news. These people not only engage in illegal harassment but have been know to make physical threats.
4)Credit Card Collection Agencies—The worst of the worst. They lie, cheat, and violate the law on a constant basis.

In dealing with these people, Dave recommends recording all telephone conversations after identifying yourself and telling the agent the conversation is going to be recorded. If they are abusive or threatening, hang up. He recommends setting a time; say every two weeks, to talk to these people. If they call more often than that, hang up.

Dave has found that in situations where you can not meet minimum payment on all your bills, sending a copy of your budget detailing necessary expenses and remaining disposable income. Feed your family, put a roof over their head, keep the heat and the lights on, and keep your car on the road, before worrying about credit card companies. He provides a separate form to list all creditors and the amount owed. Then divide the remaining disposable income to all the creditors on the basis of a percent of the total. This is called a pro rata plan. For example if you have 5 credit cards with $2,000 outstanding and one of these credit cards has a $200 balance. This card gets 200/2,000 or 10% of your disposable income. Send a copy of this form to the credit card company along with the copy of your monthly budget. If this amount is less than the minimum the credit card company will not be happy but they will cash your check. Credit card companies do not shoot lame horses, if you continue to pay and correspond (on your terms) with these companies it is unlikely they will take you to court.

On the subject of checks, never give any of these people permission to electronically debit your account. They will clean you out even if they promised to only take a certain amount. Any settlement agreements for less than the entire debt should be in writing. All correspondence should be sent by certified mail. Payment should be made by money order or certified check. All records should be retained. In a couple of years, it is quite like that these closed debts will resurface. If you do not have proof of the agreement, you will have to pay the balance.

Finally, getting sued and going to court is not the end of the world. Quite often a reasonable accommodation can be reached with the attorney before or after the proceedings. If you owe the money, you will always lose, but you can file a slow pay motion (sometimes called a pauper’s oath) after the judgment. Again, a written budget and a pro rata plan is a powerful tool to keep your creditors from seizing your personal property.