Blogging Away Debt Blogging Away Debt follows real people on their journey to debt freedom — with tips on the debt snowball, budgeting, cutting expenses, and staying motivated.

by Tricia

If you missed the ABC 20/20 Special on Flat Broke: Begging and Borrowing in America, you didn’t miss much. It’s so sad when shows like this try to cram so much into one hour that they just skim the surface of things. What could have been a great show that could have helped many people ended up being like a water spider zipping across a pond aimlessly.

The show was broken down into segments:

The Spenders

Matt and Suzie Peterson have three little girls, a big house with a pool, two timeshares, nice cars and $60,000 in credit card debt. Their financial situation really went downhill when Matt lost his job and he was unemployed for a year. Suzie tried a scrapbookking business only to have it fail. All that time of limited funds, they kept spending like they were before except it was being finances with their credit cards.

One statement that Suzie made that sticks out in my mind is that she doesn’t regret spending money. Even Elizabeth Vargas seemed a little surprised at her comment. Suzie argued that you could be gone tomorrow and you should live life now. I agree you should live life, but if you have to claim bankruptcy and you lose everything…well, I shudder to think about that happening to us. There is a healthy balance that needs to be found.

To help the Petersons, they brought in Robert Pagliarini, a financial advisor, to help them. After Robert took a look at the Peterson’s finances, it was determined they had a net worth of $8,000. In Robert’s words, this family was close to the edge of financial ruin. The Petersons were hoping to win the lottery but Robert gave them a pretty strict set of things they need to do to make things better. It was an all or nothing plan. On it, they had to sell their house and their timeshares and the rest of the list I couldn’t catch because they didn’t discuss it only showed it quickly on the screen. While Suzie wasn’t really enthusiastic about the plan, both husband and wife agreed to do it. I wonder how the Petersons are doing now, and if they kept with it.

The Savers

Steve and Annette Economides (what a last name, eh? :)) and their 5 children live debt-free on an income of less than $35,000/year. They attribute their success to careful planning. Their monthly trip to a grocery store is planned down to bringing walkie talkies so Steve and Annette can talk and compare prices on different sides of the store. They shop monthly because Annette plans their meals in a 30-day menu system. And coupons? They use lots of coupons. They say that the pennies you save all add up. Very true.

We actually have a lot in common with the Economides. When they find food at a price that is low enough, they stock up and buy a lot. I love to do that. They also purchase lunch meat (pre-packaged) that is about to expire. Annette claims they do that because they have never gotten sick. Well, as someone who worked in a grocery store I can tell you that the expiration dates are the dates that the stores need to pull product from the shelves. Most products are still good for a while after those dates. I wish they focused more on the other things they do to live on so little, but the show didn’t.

Debt Collectors

The next segment of the show was about Debt Collectors. Wow, this part made me feel sick to my stomach. One of the recorded calls they played on a show exampled how crazed some debt collectors can get, “Why don’t you just go jump in front of a train…get it over with.” Man, that made my blood boil. They played more and more calls that again showed how agressive, mean, and ILLEGAL some of these calls can be.

Consumer complaints about collection calls have risen 14%. If you happen to be a victim of overzealous debt collectors, the show gave a few tips: 1.) Contact the Federal Trade Commission 2.) Contact a lawyer and 3.) Tape the conversations. Debt collectors have no right to call you at work(EDIT – A commenter mentioned that they CAN call you at work.  I’m striking that statement out until I can take a look.  What I wrote was information I obtained from the show), threaten dire consequences or say that you have committed a crime. This was good information from the show, but I barely wrote it down because they went so fast!

Beggars, a.k.a. Cyberbegging

Dustin Diamond, before recently, was best known for his role playing “Screech” on the teen show, “Saved by the Bell.” Now that Screech is all grown up, most of the money earned while on the show has been spent due to mismanagement by his father. He left the limelight and bought a home in Wisconsin and found himself in a shady land deal. They gave Dustin 30 days to pay $250,000 or he would lose his home. Since he didn’t have any money, he started up a website where fans could buy T-shirts for $15.00 each to help save his house. He ended up selling 22,000 shirts and he still has his house.

Dustin also had some “adult” things surface on the internet that has since helped his financial situation but we will not go there. Not sure why they mentioned that in the show. I always wonder about things when they “leak” out.

The next gal they mentioned I have heard of before, Karyn Bosnak. She admits she is a shopaholic and wracked up some credit card debt. She created a site, Save Karyn where she asked people to donate a dollar each to help get her out of debt. Well, it worked. Strangers paid off her debt and now she’s published a book and a studio has movie rights to the book.

I checked Karyn’s site tonight to make sure I spelled her last name correctly and I found this tidbit:

“I was interviewed on 20/20 tonight for a special on debt. If you saw me on the show and are new to this site, thanks for stopping by. What 20/20 failed to mention is that after publishing my book, I donated all the money I received from savekaryn.com to charity. So I essentially DID pay off my debt and helped raise $20,000 for charity in the process. Funny how this was edited out of my interview. I only said it, um… three times.”

That was something important that I feel ABC left out and I’m glad Karyn put that on her site for clarification. There’s always a part of the story missing.

Dave Ramsey

I didn’t catch everything with the little bit they have about Dave Ramsey. I became upset when they played a clip of him on his show demonstrating “tough love” by using the word stupid. It sounded just like the nasty debt collectors. That’s all I’ll say about that.

Debt Collectors…Again

Here’s the other side of the debt collectors story on how they do good for the economy. After all, the small business owner who has to write off bad debt will have to raise prices to make up for the lost money. I do believe that debts should be repaid, and this part of the show made me feel a little better about debt collectors. The ones the showed here worked with people to try to pay the debt and make things right. They even gave options for payment plans or offered to lower the total amount due to settle the amount.

Easy Formulas

As an afterthought as a conclusion for the show, John Stossel and Elizabeth Vargas took turns explaning two formulas to use to see how you are doing financially. Seriously – those forumlas were on the screen for a few seconds! I was getting accustomed to scribbling notes as fast as I could through the whole show, so I was able to catch them.

– Add up all of your monthly debt payments. They should not be more than one third of your monthly pre-tax earnings.

– Take your age and divide by 2. That is the percentage of your income that you should be saving.

MY CONCLUSION
The show had interesting tidbits, but it was a lot thrown at you yet not enough (if that makes sense). I think it would have been much better if they took each of the big segments (the two families, the debt collectors, and the cyberbeggers) and made one show on each. I was left wanting more after the show but that was it.

by Tricia

I decided to ask another prosper lender a few questions about their social lending experience with Prosper. If you visit Spotsearch’s Prosper lending and borrowing tips, and start reading, you will discover that he is one of the lenders on my Prosper loan. He actually has a very interesting way of lending on Prosper. Instead of making small $50 loans to many people, he is choosing to lend larger amounts, as you will read more about below.

Without further ado, here’s the interview…

What was it about Prosper that made it appealing to you as a Lender?

I’m probably one of the few bold people that have made Prosper a key portion of their investment portfolio. In the past, my fixed income assets (cash, CDs, bonds) have been lacking. The popular rule of thumb is stocks in your investment portfolio should make up 120%-your age; and fixed income investments would be the remainder. In my case, that comes out to 82% stocks, 18% fixed income. Currently, about 8% of my investment portfolio is invested in Prosper loans, and in the future I expect to allocate around 12% or more. Why would I put such a large stake in such a potentially risky investment? There are a number of reasons.

1. The main reason is it’s fun and rewarding. I like reading peoples’ different loan requests and like feeling like I am making a difference, helping someone out. For the first time, fixed income investments are fun and interesting. Also, as an open marketplace, I feel that the rates set are usually good for both the lender AND the borrower.

2. Second, the potential rates of return on Prosper are fantastic. Typically the stock market returns average between 10-11% a year over long periods of time. With Prosper loans, you can get returns just as high or higher, which is absolutely amazing compared to CDs, bonds, or money market accounts. My current Prosper portfolio is estimated to have a 13.80% interest rate (assuming no defaults and no early paybacks). Depending on your tolerance for risk, you can have lower or higher rates of return. You can manage the risk by choosing borrowers with good credit ratings and by spreading your money over a large number of borrowers. For instance, my loans are spread across the following credit grades: AA=26%, A=45%, B=16%, C=13%

3. Finally, I feel very comfortable lending on Prosper. It is a very well-designed system. For instance, loan payments are reported back to credit reporting agencies so borrowers have an incentive to pay on time or risk ruining their credit ratings. Also, the system does a great job of tracking loans and payments and key statistics.

How “personal” are you with Borrowers? Do you contact them to ask additional questions?

I like the human aspect of Prosper. I personally contact about 75% of the borrowers that I lend to. I like to follow up on the details of their listing because usually something they write might spark a question, or they might leave out details that I’m interested in seeing. I tend to make fairly large loans so I like to personally hear from the borrower. After about 6 months of using Prosper.com, so far I have had 0 defaults and 0 late payments on 11 loans, which, though a fairly short history so far, is quite encouraging.

Do you feel that a Borrower needs to join a group within Prosper?

I think that if a borrower has a good credit rating (AA, A, B, and possibly C if the record is clean) and does a good job of writing up their loan description, there is no need to join a group. The group system in Prosper really has little benefit for those people and can even hurt them if they join a bad group. For people with worse than C grade credit, it might be good for them to join a reputable, group with a good track record. Joining a bad group, however can really hurt you in many ways such as getting a worse interest rate or getting fewer bids. The worst groups I see are ones that charge a huge fee (Prosper calls them “rewards” to the group leader), which can be as much as 4% of your loan amount, depending on your credit rating. This is absolutely outrageous. Look for groups that have a good track record of getting loans funded, of groups where the members and leaders bid on the loans, and where the group leader goes through extra verification work, if you even decide to join a group.

What one piece of advice would you give someone that is thinking of borrowing money with Prosper?

Only join groups that do 100% reward sharing (no group leader rewards). Do your homework on groups to join. Write up a good loan which tells your story, lays out your financial situation in detail in terms of your income and expenses, explains why you need the money, and your plans and ability to pay the loan back. Make sure to ask for a fair to slightly higher interest rate for your credit rating to start out with (you will likely get a lot more bids, which many times creates a competitive situation that drives down your rates in the end). Getting a loan from Prosper can be easy, painless, rewarding, and maybe even a little bit fun!

Thanks Spotsearch for the interview 🙂