Another Record for Household Debt: No Comic Relief Here!

Over the last few weeks my friend and colleague Lisa Brammer and I have been writing about the need to improve our financial literacy. Taken as a whole we consumers are ‘woefully inadequate’ in terms of our understanding of basic financial instruments and ways to manage our personal finances, let alone how our economy works and what drives it. 

Much of our writing has been in relation to Financial Literacy Month, which concluded this past April.  Many financial institutions, as well as Federal and State Governments, used this month to promote greater understanding of critical financial concepts and provide basic tools that are available to the public to help put their financial lives in order.

That is no small task, however, and given the state of household debt it is like turning an aircraft carrier on a dime: it just does not happen quickly.

Yet, as the old saying goes, a long journey starts with a single step.  And sometimes that single step is the hardest to take.  But take it we must or at some point face some pretty dire consequences.

More in a moment on another unique educational tool the Federal Reserve of New York makes available to the public.

But first, to underscore the need for personal financial house cleaning, the New York Fed just released its report on first quarter household debt. 

No surprise: we set yet another record for debt accumulation.  Among the findings from the Fed (read the report here).

  • Total household debt now stands at an unbelievable $13.67 trillion.  All one can say is wow!
  • Debt increased by $124 billion during the quarter.
  • This is the 19th consecutive quarter that household debt has increased.
  • Total household debt increased during this stretch by nearly $1 trillion ($993 billion).
  • Mortgage balances rose by $120 billion while originations declined to the lowest level since the 3rd quarter of 2014.
  • Student loan debt increased by another $29 billion to $1.49 trillion.
  • New auto loans grew to $139 billion.
  • Credit card balances fell slightly to $848 billion.
  • Notes the New York Fed: “As of March 31, 4.6% of outstanding debt was in some stage of delinquency. Of the $623 billion of debt that is delinquent, $417 billion is seriously delinquent (at least 90 days late or “severely derogatory”).”

Clearly, we have our work cut out for us and greater focus needs to be put on financial education before this trend ends in disaster.

In an earlier blog I referenced a site run by the U.S. Government called “MyMoney.Gov” (www.mymoney.gov). Its focus is on basic financial literacy and education, and also provides basic financial management tools to help consumers put their affairs in order. 

To my surprise, however, another tool has been made available by the New York Federal Reserve to educate young people in the hopes that earlier understanding will lead to mature financial decisions in adulthood.

The tool? 

Comic books.

Yes, comic books.  And before you laugh and wonder about another crazy government project there is method to this madness, and comic books have been used by the Federal Reserve for years (since the 1950’s) as aids for teachers and other educators to enhance learning.

According to the New York Fed’s web site: “The New York Fed’s Educational Comic Book Series teaches students about basic economic principles and the Federal Reserve’s role in the financial system.  Created for students at the middle school, high school, and introductory college levels, the series can help stimulate their curiosity and raise their awareness of careers in economics and finance.”

No Batman and Robin here however.  Here we encounter (on the planet “Novus”) “Mr. Murt,” “Flora” and “Q-seven, a blue cube from the planet Alpha-Numerica” among other characters.  Admittedly the comics don’t exactly have dynamic, action packed titles. Here you will find “The Story of Monetary Policy” and “The Story of the Federal Reserve System.”

Yet the intention is very good and the content easy to understand which makes understanding the fundamentals of how our overall economy works a little less wonky and a lot more every day.  If you are an educator, or even someone just trying to understand what the Fed does, or what monetary policy is, check them out at https://www.newyorkfed.org/outreach-and-education/comic-books .

The fact is it will take an abundance of tools and an early start to drastically improve our financial literacy.  However, it is crucial that this start now.  Even if taken in small steps these efforts will help educate consumers on managing their burgeoning debt before the effects become catastrophic.

A. Alliance is here to help.  We supply a key component in the economic chain to ensure our client’s recover their debts and keep their businesses operating smoothly in good times and in bad.

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 14 years.

image provided by: Alpha Stock Images – http://alphastockimages.com/

Excessive Debt is Bad: Did You Miss Financial Literacy Month?

Two weeks ago, my friend and colleague Lisa Brammer wrote a great blog about financial literacy (read her blog here) and included a brief quiz of basic financial concepts.  If you took the quiz, did you pass?  Many of us did not, and frankly there is a big price to pay for our lack of basic financial literacy and judgement.

National consumer debt is bad, and getting worse. Those of you who pay attention to such things know that consumer debt is at historic levels.  That includes all types of debt:  mortgage, credit card, auto loan and especially student loans.  The New York Federal Reserve will release its first quarter report on consumer debt in the next few weeks and I would bet bratwursts to Francs we will set yet another record.

Paired with the fact that the majority of us don’t have enough money to even cover one month of our living expenses, let alone a major emergency, our individual financial portraits are, frankly, pretty awful.

So, yes, excessive debt is bad.

So why does this fact seem to attract little attention these days?  When the New York Fed releases its report there are typically cursory news reports about the records we are setting. One can almost hear the cluck, cluck, cluck of the reporter’s tongue citing how bad debt has become.  Shame on you American consumers!

Yet, it seems that when the economy is good, we tend to ignore the consequences of being radically overextended.  With unemployment low, and wages steady if not rising, we pretty much have the cash from pay check to paycheck to pay off our debt.

So how do we change this? 

Events like Financial Literacy Month are good to call attention to the tools and resources available to help us right our financial ships.  Unfortunately, it may take a fairly catastrophic event, like a recession, to really get our attention enough to actually change our habits. 

Yet, sometimes it is just a matter of taking small steps to climb that big mountain.  Google “Financial Literacy” and you will find a ton of resources to help educate and get direction to correct financial peril. 

One such resource I found was actually a government site: www.mymoney.gov.  To quote the website about what the purpose of it is:

“This website is a product of the Congressionally chartered Federal Financial Literacy and Education Commission, which is made up of more than 20 Federal entities that are coordinating and collaborating to strengthen financial capability and increase access to financial services for all Americans.”

What I found interesting is that this is really a simple web site for young, middle aged and older Americans to find basic tools to build their financial literacy. 

They built the site around what they call the “My Money Five,”:

  • EARN – Make the most of what you earn by understanding your pay and benefits.
  • SAVE & INVEST – It’s never too early to start saving for future goals such as a house or retirement, even by saving small amounts.
  • PROTECT – Taking precautions about your financial situation, accumulate emergency savings, and have the right insurance.
  • SPEND – Be sure you are getting a good value, especially with big purchases, by shopping around and comparing prices and products.
  • BORROW – Borrowing money can enable some essential purchases and builds credit, but interest costs can be expenses. And, if you borrow too much, you will have a large debt to be repaid.

Included on each page are simple suggestions for understanding our financial levers.  They also include tools like tax withholding calculators, links to free credit reports, sample budgeting worksheets, tips to protect your personal information and more.

In her blog Lisa points out some good news that younger consumers are improving their financial literacy.  Schools certainly are doing more to prepare students to face financial reality once they become part of the working world. Yet, knowing versus doing are two separate things.  The allure of easy credit is certainly seductive and more attractive than the dull, but critical, discipline of personal financial management.  As our debt picture stands right now it will take a monumental effort to change this situation.  Yet, even a few small steps today can improve our chances of avoiding financial catastrophe. 

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded innorthern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 14 years.

Debt Collection: It’s All About the Info

Unless you collect 100 percent of charges billed at time of service (or delivery) people are going to owe you money. That’s a fact. How successful you are at getting paid is dependent on a number of factors (like the age of the debt). But without a doubt the most important thing you can do to improve the collectability of past due accounts isn’t some elusive collection strategy privy to only a few. It’s actually quite simple: get as much information as you can about the person (or company) before you provide service. 

I can’t tell you how often clients, especially the smaller sized ones, will send us placements for collection that are missing key pieces of information. I can’t stress this enough: The more information you provide, the more collectable the account will be.

To be fair, simple is not the same as easy. I understand that. Getting all the requested information will take some work. I know most of our clients already provide their customers with a form requesting the information.  But oftentimes simply asking for the information isn’t enough. It’s important to follow up to make sure the form is filled out in its entirety.

At first it might feel awkward asking customers to fill in the unanswered questions. But if you make the completion of the form a company policy it will make it less personal when you explain that everyone is required to do it.

Contrary to what you might have heard debt collection is a heavily regulated industry. There are certain pieces of information that we are required to have and others that will aid in the collection process.

Best practices include the following: 

Please note: * denotes information we are required by law to have or we cannot pursue the debt.

  • First and last name of debtor* – It might be hard to believe, but we have had clients send us accounts without the last name of the debtor. This is a must-have piece of information!
  • Address – We are required by law to send a debt validation letter on all accounts placed.  If you had an address that is no longer valid send it along as the last known address.  We can use it to skip-trace the account to find debtor’s current address.
  • Date of Birth and/or Social Security Number – Having this information makes finding the debtor’s current address easier. Also, we must have either a DOB or a SS number or we are unable to report the debt to the credit reporting companies (Experian, Equifax and Trans Union). Reporting debts to these agencies is a great tool we use to get debts paid.
  • Phone Numbers – Best practices include: home, cell and work. We use telephone calling campaigns as one of our collection tactics.  Lack of phone numbers prohibits this worthwhile tactic.
  • Amount Owed* – Many of our clients include late fees and interest on amounts owed.  Typically these fees are not collectable and should not be included in the amount owed. (There are some instances when fees can be collected, but only on certain types of debt that have a contract with the debtor such as a signed lease or signed financial agreement. Even then the fees must be expressly stated in the contract. And a copy of the signed agreement must be submitted when the account is placed.) Law requires us to be able to validate the debt. Balance forward pages do not fulfill this requirement. Accuracy is extremely important. We must be able to notify the debtor of the exact amount they owe. 
  • Last Date of Service* & Date of last Payment – There is a Statute of Limitations (statutes vary state to state) on how long we can pursue a debt for collection. To stay compliant with collection laws we need to have last date of service.
  • Employment – Name and address of employer.  This is a critical piece of information needed when considering litigation as a way to collect.
  • Spousal Information – Name/Address/phone numbers/employment information for spouse.  Sometimes (depending on the state and type of debt) the spouse of the debtor is also financially responsible for the debt.
  • Name of Creditor* – We must have both the legal name of your business as well as a DBA if it is different (or if you have more than one business) to validate the debt and when reporting to credit reporting agencies. 

I hope you found this list to be useful. Whether you partner with us or another reputable collection agency it is important to work together as a cohesive team so the money owed can be collected as effectively and efficiently as possible.

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded innorthern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 14 years.