If everything we do we try to make things simple, eventually myths come up and for those outside the industry, it is accepted as truth. Sometimes the myths are not correct, in some ways they are not necessarily wrong, but conventional wisdom is not always perfect. Doug Hoyles is co-founder of a large personal insolvency firm and wrote a book called Straight Talk on Your Money published by Milner and Associates, Toronto, 2017.  Mr. Hoyles is reflecting on his years of practice and offers advice on how the system is structured.

Myth 5   The Most Important Number is the Monthly Payment

The notion that only the monthly payment matters is ridiculous and the worst myth in these segments. If you only worry about the payment (and you can) the interest on the item will be much more than the cost what you think you will be. For example a $30,000 car at 7% stretched over 72 months will cost $36,825. Remember the reason to have a car is to drive it which includes insurance, gas, maintenance, the cost of the car increases from the low monthly payment.

It might be better to drive a less expensive vehicle, then buy another one in a few years.

Myth 6   Bank at only one Bank

Many of the people working at the bank are nice people, they are also sales people.

Watch for fees – once you are a customer they have less incentive to give you the best rates because it is hard to switch because many people have preauthorized payments or deposits to their accounts.

You lose control – best solution – have your income deposited a one bank and pay your bills from another bank. In this manner, if you have a credit card at a bank, they can go into your account (even if you did not authorize it, to take the minimum payment).

Myth 7  When a collection agent calls, always pay up

To understand collection agencies, you need to understand the process in which they operate:

1. all is good, you are paying your bills on time.
2. something happens and you are unable to pay the minimum (remember 50% of US consumers said if they had an unexpected bill of $1,000 they would be behind). The first stage is a letter is sent to you.
3. The next month is no better, the phone calls start, the people are understanding and nice asking if there is something you will be doing or can do?
4. By month number 3 the friendly approach is over. The bank will suspend your card and demand full repayment.
5. The collection agencies pay their people less than at a bank and their commission tends to be 20% of what is collected. A letter from the collection agency starts and you will be called daily for about 2 months.
6. The time has passed and they do nothing, no letters or calls.
7. A new collection agency has your file and the process begins again but the commission has changed to 40% of what they collect.

For debts under a year, the banks tend to keep the debt but the commission rate for the collection agency gets larger because it is profitable for the bank to keep the debt. If debt is older, then it will be sold to gain something for the bank.  This is the reason why it is hard to make a great deal with the collection agency. If a buyer paid 5 cents on the dollar and you pay half back they make 10 times their money. If the collection agency does not own your debt, then they are less inclined to do a deal because they lose money.

Depending on the size of the debt, if the collection agency says it will sue, they will almost never sue. Why logistics? The case would be in small claims court, the collection agency lawyers cost money; you could either self represent or have legal aid; and even if the collection agency wins what do they get? The person likely has no assets.

Often the collection agency will ask for partial payments. If you have not paid in 2 years, do not make partial payments it only resets the clock. A partial payment means the collection agency has another 2 years to contact you. A small payment helps them not you.

Linking to dividend paying stocks, similar to all industries there tends to be a process. In every large organization their is a process for everything, so people are protected. For your investments you need to know what their process are – how does the business work? what are the cycles? what actually affects the profitability of the company? After you know these then you can determine if the company is in good shape or not.

There are more questions than answers, till the next time – to raising questions.

 

 

 

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