October 22, 2008
The Servicemembers Civil Relief Act of 2003 (SCRA) provides members of the military with a lot of great protections while serving their country in a combat zone. The SCRA protects Servicemembers from high interest rates, eviction, foreclosures, bankruptcy, lawsuits, etc. when called to active duty. The law is especially helpful for Reserve and National Guard forces who may have taken a pay cut form their civilian jobs to defend the country.
While the law was especially designed for Reservists and National Guardsmen, I have seen many patriotic companies honor the spirit of the law for active duty members of the military too. And, these are the companies that should be lauded for their commitments to our military. The law states that interest rates on loans including mortgages and credit cards must be reduced to 6% annually while the Servicemembers are on active duty. The lowering of the rate only applies to debt incurred before starting active duty service.
Because of that wording, I had a Soldier in my unit who had a bill consolidation loan with high interest rate from GE Financial, now called Genworth Financial after GE sold its financial services unit. GE Financial refused to lower my Soldier’s interest rate to 6% because he has always been on active duty and the debts were incurred while working on active duty.
I tell you that story as a warning about the companies you do business with. Citibank is the polar opposite from GE financial. Citibank not only lowers interest rates, but they drop it all the way down to 0% while you are deployed. Companies like Citibank should be applauded for their commitment to Solders while GE Financial should be avoided like the plague.
If you are currently deployed and have not contacted your creditors, have no fear. You can fax or mail a copy of your deployment orders anytime and receive a credit for any interest over 6% that you may have overpaid. It is back dated to the day that you deployed which is stated on your deployment orders.
Even though the economy is in a downturn and financial companies and banks are struggling it is great t see companies like Citibank who are committed to our nation’s military.
If you have specific questions about the Servicemembers Civil Relief Act you should contact your Judge Advocate General’s (JAG) office or legal assistance represtative for help.
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September 2, 2008
Waiting to pay down debt is not a good idea if you have the money readily available. It can cost you thousands of dollars if you are not careful. Would you borrow against your credit card to invest in the stock market? Do you have a low enough interest rate on your credit card and a guaranteed way to earn a higher interest rate in stocks to warrant the risk? No of course not. Most people would cringe at the idea of borrowing against a credit card charging you 8% (which is a great rate!) in the hopes of earning 10 to 12% investing in the stock market.
So, why would you keep $20,000 in a simple savings account earning 1% for six months instead of paying down some of your $60,000 in credit card debt with an average interest rate of 10%? It is ludicrous, but of course one of my Soldiers did just that. He had saved up the money specifically to pay off some consumer debt, but he did not trust his wife enough to pay the bill. He instead waited until he got home from Iraq and paid the debt off himself.
Meanwhile, waiting the extra six months cost him an additional $1,000 in interest payments on the $20,000 he paid off. He could have also used what he was paying in minimums as part of that debt to start a debt reduction plan like Dave Ramsey’s Debt Snowball months ago.
Like many rules and regulations in the military, you think that situations like this would go without saying. For example, according to Article 134 in the Uniform Code of Military Justice, it is illegal for a member of the military to jump from a military ship into the water. Does this really need to be a military law? Yes, it does because someone has done it before. That’s the reason why there are so many crazy rules and relations today. The same thing applies to this investing situation and advice. You think that I would not have to say it, but someone did it. So, I wanted to share with you in the hopes that no one will make the same mistake that one of my Soldiers did. Don’t sit on your money hoping your problems will go away. Procrastination can cost you thousands!
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August 30, 2008
I had a boss who had over $60,000 of credit card and other consumer debt. He never could understand why he could not dig himself out of the hole that he had created. It only took a month of working for him to understand where most of his problems came from. His personal finance focus was mixed up or inverted in a way. My boss would agonize and sweat the small purchases while totally blowing all his money on poorly planned, researched, and impatient large purchases. He would hem and haw about saving a few dollars here and there on small purchases like going out to eat at a restaurant, but he would decide at the last minute to fly across the country to see his family while he was on temporary duty (TDY).
Don’t get me wrong, small needless purchases will quickly add up to large sums of money if you are not careful, but you have to be able to see the forest AND the trees. It’s a balancing act, but you have to get the large purchases like home mortgages, car loans, etc. right if you want to have any chance of having a healthy personal finance picture.
Here are just a few examples of the mistakes my boss made in order to get $60,000 in debt:
- Poorly choosing the neighborhood to buy a house in
- Sending his children to private elementary school
- Leasing a car
Penny pinching is pointless if you get the large purchases wrong like those listed above. Get the large purchases right, and then sweat the small stuff.
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