MONEY financial literacy

The Financial Literacy Test You Need to Pass

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Martin Shields—Getty Images

Answer these 5 questions to find out how much you know about money.

It’s generally useful to be literate in at least one spoken and written language. But that’s not the only kind of literacy that matters. We need to be savvy about managing (and growing!) our money, too. Here’s a financial literacy test that will help you figure out where you are on the road to financial success.

Answer the following questions without reading below them until you’re done:

  1. What is your net worth?
  2. Is it more important to pay off high-interest rate debt or save for retirement first?
  3. When should you start saving for retirement?
  4. How much money will you need to have accumulated for retirement?
  5. Do stocks, bonds, or real estate grow fastest over long periods?

Now let’s review each question and what your answer reveals.

What is your net worth?
There isn’t exactly a right or wrong answer to this question, though an answer of $0 or negative $100,000 would clearly be undesirable. Instead, the way to get this question right is to know what your net worth is, roughly.

Many people have no idea, because they haven’t given much thought to the matter. But as you take control of your finances, and aim to build a comfortable future, it’s important to have a handle on how financially healthy you are.

To determine your net worth, add all your assets together, including cash, savings and investing accounts, and the value of your home, car, and other belongings. Then subtract from that total all your debt, including the balance on any mortgage, car loan, or credit card account. What do you get?

Ideally, your net worth is positive — and poised to grow. If it’s negative, or lower than you want it to be, start figuring out how much money you have coming into your household, where it’s all going, and what changes you might be able to make to boost your net worth.

Is it more important to pay off high-interest rate debt or save for retirement first?
Tackling the debt should be your priority. With pensions having been phased out at myriad companies, it’s more important than ever for us to save for our retirements. But don’t do so while carrying high-interest rate debt, or you’ll likely end up losing ground.

You can hope to earn close to the stock market’s long-term annual average growth rate of around 10% with your stock investments, and that can turn a single $10,000 stub into almost $26,000 in a decade. But if you’re carrying $10,000 in credit card debt and are being charged 25% interest, you can expect that balance to soar to more than $90,000 in a decade, if you don’t pay it off pronto.

It’s OK to maintain low-interest rate debt, such as a mortgage, while saving and investing for retirement; but debt with steep rates should be tackled as soon as possible. Otherwise, what you owe is likely to grow faster than what you own.

When should you start saving for retirement?
The right answer here is as soon as possible. It’s easy to assume that it’s safe to put it off while you’re in your 20s and even 30s, but that would be a big mistake. The later you start saving and investing for retirement, the more aggressive you’ll have to be. If you start at age 45, for example, you’ll have only 20 years to accumulate your nest egg, while someone starting at age 25 will have 40 years — twice as long.

That’s important, because the longer your money has to grow, the faster it can do so. Consider that if you save and invest just $5,000 per year, and it grows at 10% annually, it will become $315,000 in 20 years. That total wouldn’t just be twice as much over 40 years — it would be $2.4 million! If you sock away just $1,200 at age 18 and it grows at 10% for 47 years until age 65, it will top $100,000. Your earliest dollars have the most growth potential.

How much money will you need to have accumulated for retirement? There’s no one-size-fits-all answer here. You’ll probably need to crunch some numbers on your own to arrive at a decent estimate.

For starters, note that, per many experts, a relatively safe annual withdrawal rate from your nest egg in retirement is 4% (adjusted for inflation each year), if you want your money to last. Thus, estimate how much annual income you’d like in retirement, and multiply it by 25 to determine how big a nest egg you need. Want $50,000 annually? Aim for $1.25 million.

Of course, you can also factor in Social Security income and any other expected income. (As of June, the average Social Security benefit was $1,335 per month, or $16,000 per year.) If you earn an above-average income, and assume an annual income of $22,000 from Social Security, then you’ll only have to aim for $28,000 annually on your own, which would mean a nest egg of $700,000.

Do stocks, bonds, or real estate grow fastest over long periods?
The answer here is clear, and it’s stocks. If you don’t understand how much you can expect to earn on various kinds of investments, you can leave thousands or hundreds of thousands of dollars on the table during your investing lifetime.

Check out this data from Wharton Business School professor Jeremy Siegel, who has calculated the average returns for stocks, bonds, bills, gold, and the dollar, between 1802 and 2012:

Asset Class Annualized Nominal Return
Stocks 8.1%
Bonds 5.1%
Bills 4.2%
Gold 2.1%
U.S. Dollar 1.4%

Source: Stocks for the Long Run.

The annualized rate for stocks from 1926 to 2012 was 9.6%, by the way. Stocks overpower bonds over both the long run and — usually — the short run. Siegel’s data shows stocks outperforming bonds in 96% of all 20-year holding periods between 1871 and 2012, and in 99% of all 30-year holding periods.

Meanwhile, the research of Nobel-prize-winning economist Robert Shiller, famous for his studies of the housing market, has home prices averaging annual growth of about 5% in the post-war period since World War II.

Don’t doom yourself to financial illiteracy. Keep reading and learning about smart money management, and your future may be much brighter. Give yourself a financial literacy test every now and then, too, to keep yourself on your toes.

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MONEY Student Loans

The Student Loan Problem Nobody Is Talking About

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zimmytws—Getty Images

A hidden culprit for much of our $1.2 trillion student loan debt problem.

Student loan debt isn’t a problem. Having a lot of student loan debt is the problem. That sounds obvious, but it’s a point that’s lost in a lot of discussion involving large numbers like the $1.2 trillion bill being carried around by America’s former students.

Look behind the numbers, and you’ll see that the student loan debt problem – just like the credit card debt problem, or the mortgage debt problem – is multi-faceted. Some people are managing their debt just fine, some aren’t.

For example, despite many claims that student loans are blocking millennials from buying homes, a study by Goldman Sachs last year argued that millennials with average college debt (around $30,000, depending on how you count) are no less likely to get a mortgage than their loan-free peers. That makes sense. Paying down a $30,000 student loan isn’t much different from paying off a car loan. On the other hand, former students with more than $50,000 in debt are considerably less likely to own a home, and those with large debt that eats up a big chunk of their income are much worse off – those who spend more than 10% of their income are 22% less likely to own a home.

Check out the new MONEY College Planner

So the problem isn’t debt, it’s unmanageable debt. And not all college debt is created equal. For example, The New York Times recently reported that only 12% of students who graduated from public colleges owed more than $40,000, while 20% of private college graduates did. On the other hand, fully 48% of for-profit college graduates owed more $40,000.

But to find the really stunning student debt numbers – and the heart of the problem — you need to look at students who go on to graduate school.

Median combined college / graduate school debt for someone who earned a degree in 2012 was $57,600 and worse, one-quarter of all grad degree earners had borrowed more than $100,000, according to a paper published last year by the New America Education Policy Program. One in 10 borrowed more than $150,000.

It should come as no surprise that people carrying six-figure student debt balances aren’t taking out mortgages. They are already making what feels like a mortgage payment every month.

Roughly 40% of the $1 trillion-plus outstanding student debt is owned by graduate school students, the paper says

Jason Delisle, who wrote the New America paper, blames skyrocketing graduate school debt on changes to federal loan programs that essentially allow grad students unlimited borrowing. The more students can borrow, the more schools can charge. Recent research linking increased lending limits to tuition inflation suggest he’s right.

“Looking at the debt levels of law school students, for example, there was no significant change in the average amount of debt students graduated with between 2004 ($88,634) and 2008 ($90,052). But by 2012 (after loan limits were raised), the average spiked to $140,616, and the average monthly payment shot up from $760 in 2008 to $1,187 in 2012,” he writes.

In other words, when talking about the $1.2 trillion student loan problem, it might be more specific to talk about the graduate school student loan problem. And it might be possible to focus the discussion even more. A new study released in July from the Center for American Progress (CAP) found that 20 universities received one-fifth of the total amount of loans the government gave graduate students in the 2013-2014 academic year. Those schools educate only 12% of the students, however — and most of them are private, for-profit schools.

So we might think of the student loan problem as the graduate school and for-profit school problem.

Delisle says that’s not quite accurate, however.

“For-profits are a small share of the problem,” he said. His data shows that for-profit schools generate only 10% of the total debt for students who end up owing more than $100,000. For grad students borrowing between $25,000 and $50,000, that number swells to 16% — disproportionate, since graduate schools educate only 8% of students, but still a small slice of a big problem, he said.

“Graduate school debt is driving the big numbers,” he wrote in a post on Forbes.com recently. “Even if lawmakers expunge the system of unscrupulous for-profit colleges, those trends won’t change.”

The danger of graduate school debt comes into focus even more sharply when you consider the surge in graduate school applications that occurred during the Great Recession, when many suddenly unemployed mid-career professionals jumped into graduate schools for a lifeline. Their loans are just starting to come due now.

Of course, big graduate school balances aren’t the only serious problem in the student debt world. College students who drop out face perhaps the biggest obstacles of all – no degree and years of monthly repayments. College graduates with higher-than-average loan balances also face a steep climb. But when you hear horror stories about overwhelming student loan balances, odds are, you are hearing about a former graduate school student.

If you’re having trouble paying your student loans, it’s important to contact the loan servicer to see if you qualify for a relief program (here’s a list of repayment options), or if you can restructure your loans for a more manageable payment. Missing payments, not to mention defaulting, can have a big negative impact on your credit.

Check out MONEY’s 2015-16 Best Colleges rankings

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MONEY

5 ‘Good’ Credit Habits That Are Actually Bad

using a credit card to pay online
Laurent Delhourme

Time to rethink what you know.

Americans know a fair amount about credit and credit scores. More than half understand, for example, that making payments on time, keeping credit card balances low or paid off, and not opening several cards at once can help raise a low score or maintain a high one, according to a recent survey.

People also know that credit scores are important. More than 80% of respondents knew that mortgage lenders and credit card issuers use them to evaluate applicants, and more than 50% also knew that landlords and cell phone companies take them into account.

That said, credit scoring formulas are complicated, and some of the nuances of how they work are mysterious. Here are five credit habits that seem positive at first glance, but on closer look could be causing you trouble.

1. Paying in Full

…if you think that undoes the damage of running up big bills.

To be clear: Paying in full is really the only smart way to use credit cards. You shouldn’t carry balances or charge more than you can easily pay off each month.

But paying in full won’t save you from the damage done to your credit scores when you’ve charged up a storm. That’s because the balance reported to the credit bureaus — and used to create your scores — is often the balance from your last statement or from a random day of the month picked by your issuer. You can pay your balance the day after it’s due, but the higher balance reported by the issuer is the one that matters.

Your credit utilization — how much of your available credit you’re using — is one of the largest factors influencing your scores. Keeping it low throughout the month is important. Try to use less than 30% of your credit limit on any card, and keep usage below 10% if you’re working to improve your scores.

2. Checking Your Credit Score…

…if you’re looking at only one score.

If you’re at all savvy about credit, you know the act of checking your credit reports or scores won’t hurt your numbers. But you may not understand how many scores are being used to judge you, which limits the value of seeing just one.

FICO is the leading credit scoring formula. Its creator, also called FICO, says it’s used in more than 90 percent of credit-granting decisions. But there are many different FICOs. The most commonly used is the FICO 8, but many lenders use older versions of the score and some are testing the latest version, known as FICO 9.

There are also variations on each formula customized to different industries, such as auto lending and credit cards. While most FICOs are on a scale of 300 to 850 scale, the auto and bankcard scores are on a 250-to-900 scale.

All these scores also can vary based on which credit bureau supplies the credit report. The three credit bureaus (Experian, Equifax, and TransUnion) are private, competing businesses, so the information in your files is likely to be different at all three.

And FICO isn’t the only formula being used. VantageScore, which the credit bureaus created to rival FICO, is gaining acceptance as well.

You can’t predict which score a lender will use, so you may find it helpful to see a range of numbers that reflect your credit situation. To do that, you can buy a FICO 8 ($19.95) from one of the bureaus atMyFico.com, and the site will include five or six other FICOs commonly generated at that bureau.

You can check your VantageScore 3 for free at various sites. CreditSesame offers VantageScores drawn from TransUnion data, while MyBankrate and Quizzle distribute VantageScores using Equifax data.CreditKarma offers two VantageScores, one each from TransUnion and Equifax, and Credit.com offers VantageScores from Experian.

3. Putting a Fraud Alert on Your Credit Reports After a Breach…

…instead of a security freeze.

Placing a fraud alert on your credit reports is a prudent move after a database breach exposes personal information such as your credit card numbers, address, or email. If the breach exposed your Social Security number — the key that unlocks your credit history — you need to consider something more drastic.

A security freeze, also known as a credit freeze, prevents new lenders (ones you don’t already have a business relationship with) from seeing your credit report or score.That makes it harder for identity thieves to open new credit accounts.

Security freezes involve some hassle and cost. You may have to pay fees to freeze your credit reports and more fees to temporarily lift the freeze if you need to apply for credit, rent a new apartment, or get a new job. (Landlords and employers may also check your credit.)

Security freezes also don’t protect you against all types of identity theft. A criminal could still take over your existing accounts, use your health insurance to get medical coverage, or steal your tax refund. But they typically make new account fraud — one of the most profitable types of identity theft — much harder to pull off.

4. Keeping Unused Accounts Open…

…if your credit scores are high.

Yes, closing credit cards can hurt your scores. Shuttering an account typically reduces the amount of available credit you have, which in turn affects your overall credit utilization.

If your scores are good — say, FICOs in the 750 range and above — you shouldn’t be afraid to close an unused account now and then, especially if you’re tired of paying an annual fee on a card you no longer use or you’re concerned an unmonitored account might be used for fraud.

5. Not Using Your Credit Card…

…and using a debit card instead.

To have good credit scores, you need to have and use credit accounts. That doesn’t mean you should carry balances, but you should use a card to reduce the chances the issuer will shut it down.

The bigger problem is that debit cards are a much less secure payment method because they give thieves a direct way into your bank account. Once the money is gone, you may have to fight to get it back.

And if you don’t report the fraud in time, you may be stuck with the loss. Federal law limits your liability to $50 if you report fraudulent charges within two days. Between two days and 60 days, your liability is $500. After that, it’s unlimited.

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MONEY Debt

Parent Education Loans Can Ruin Your Retirement

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Nikki Bidgood—Getty Images

Here's what you need to know before taking out a parent PLUS loan.

Parent education loans can help your child attend the college of her dreams—and sink any dreams you had of ever retiring.

The grim reality is that the federal PLUS loan program allows parents to borrow far more than they can comfortably, or even ever, repay.

PLUS loans let parents (and graduate students) borrow up to the full cost of an education. There is only a basic credit check and no underwriting to determine whether the borrower has the income or ability to repay the loans.

The vast majority of parents do not borrow nearly as much as Democratic president hopeful Martin O’Malley and his wife, who said they have borrowed $339,200 to educate the first two of their four children, or Republican presidential candidate Scott Walker, who has borrowed between $100,000 and $120,000 for his two sons who are still in college, according to recently filed financial disclosure forms.

But even much smaller amounts can prove difficult to repay for some parents. An analysis by financial aid expert Mark Kantrowitz in 2012 found that monthly PLUS loan payments ate up an average 38% of monthly income for borrowers in the lowest 10% of incomes. One in five parent borrowers had a child that received a Pell Grant, which are reserved for the poorest students with household incomes of $50,000 or less.

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An article published by investigative site ProPublica last year highlighted a woman living on Social Security disability payments who had $45,000 in parent PLUS loans for her child. (The average Social Security disability recipient gets about $14,000 a year, while the maximum possible benefit is just under $32,000.)

Parent PLUS default rates are still far below those for undergraduate student loans – 5% of parent borrowers in 2010 defaulted within three years compared to 15% of student borrowers. But the parent rate has nearly tripled over the past four years, suggesting a rising tide of floundering borrowers.

Repayment Plans

The Obama administration in recent years expanded income-based repayment programs for struggling student borrowers, typically reducing payments to 10% or less of their incomes. The lowest-income student borrowers do not have to pay anything, and forgiveness of remaining balances is possible after 10 years for those in public service jobs and 20 years otherwise.

There is no similar help for parents. The income-contingent repayment plans available are not as generous, and there is no forgiveness. As with student loans, parent PLUS loans are extremely difficult to erase in bankruptcy and the government has extraordinary powers to collect, seizing tax refunds, getting wage garnishments without going to court and taking a portion of defaulted borrowers’ Social Security checks, which are off-limits to other creditors.

In general, PLUS loans that total less than the parents’ annual incomes can be paid off within 10 years, Kantrowitz said. If the parents were within five years of retirement, they should limit total education debt to 50% of their income, he said.

That does not mean taking on that much debt is smart. College graduates presumably will benefit from higher incomes as the result of their education. Their parents will not. Parents also have fewer working years ahead of them, which means any financial setback such as a layoff can make a heavy debt load overwhelming and kill any shot at a comfortable retirement.

“I would never recommend parents borrow six-figure debt for their children, even if they can afford to repay the debt,” Kantrowitz said, adding, “Parents don’t always make the smartest financial decisions.”

Read More: MONEY’s 2015-16 Best Colleges rankings

MONEY credit cards

How Scott Walker Can Fix His Credit Card Troubles

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Scott Olson—Getty Images Republican presidential hopeful Wisconsin Governor Scott Walker

The solution depends on the governor's credit score.

Gov. Scott Walker has a credit card debt problem.

The Wisconsin governor and GOP presidential candidate has between $20,000 and $30,000 in combined credit card debt on two separate cards, according to his recent public financial disclosure. On one card, in fact, he’s enduring a particularly onerous 27.24% APR.

What this development portends for the self-described fiscal conservative’s political future is unknowable. Walker currently rests in third place among the 17 Republican candidates vying for the party’s nomination, according to recent polls.

But Walker’s debt trouble doesn’t necessarily make him so different from the average indebted household — which, after all, is also burdened by more than $15,000 in credit IOU’s. MONEY talked with a number of credit card experts to come up with a plan to help the governor alleviate his troubles. If you are carrying a balance as well, there’s a lesson here for you too.

State of Affairs

First, the facts: Walker says he has $10,000 to $15,000 worth of debt on two separate cards, with a 27.24% APR on his Barclaycard and and 11.99% on a piece of Bank of America plastic. The astronomical Barclaycard APR is a particular problem, say experts.

How bad is it? If “Walker were to only make minimum payments on his bill every month, it would take him approximately 142 years to pay off his Barclaycard debt completely,” says consumer financial site ValuePenguin.com’s Robert Harrow.

Plan of Attack

The first thing Walker needs to do is lower the interest he’s paying on his debt. One way to do this is to open a balance-transfer credit card, which offers an extended 0% interest period, but usually charges a fee for the transfer.

But he may not be able to move everything over at once. Since his debt is so high, “he may not get a large enough credit line to transfer the entire balance, in which case he should transfer the highest balance first,” says Credit.com’s Gerri Detweiler. Issuers will rarely allow cardholders to transfer more than $15,000, Harrow adds.

What cards should he consider? “Chase Slate would be a terrific deal for him,” says Detweiler. A MONEY Best Credit Card from 2014, the Slate offers balance carriers a bevy of features to help them pare down a bill. The main benefit is that borrowers can transfer their balance without a fee — generally 3% — if they do so within 60 days of opening the card.

Walker would then have 15 months of 0% interest during which he could chip away at his debt. If you assume Walker is right in the middle of the disclosure form’s range, owing $12,500 on the Barclaycard card, he could retire his debt on that card with 15 payments of $833 a month — not an impossible task, since he takes in nearly $150,000 a year from taxpayers. To pay off his debt over the same time period but leaving it on the Barclaycard would require payments of almost $1,000 a month.

To get a 0% interest reprieve for the Bank of America card debt, Walker would do well to sign up for the Citi Simplicity, another MONEY Best Credit Card. While he would confront a 3% fee on the transfer — equal to $375, if we again assume a balance of $12,500 — he’d have 21 interest-free months to settle his balance. That would make his monthly payments about $600.

So Walker could rid himself of the debt by paying roughly $1,433 a month for 15 months, and then $600 for an additional six months.

Possible Setbacks

There’s one potential roadblock here: Both the Slate and the Simplicity require excellent credit. And although it’s possible to carry a balance and also have a FICO score in the 700s, Walker may not be so fortunate.

“You don’t get saddled with a 27.24% interest rate on a general use credit card unless the bank considers you ‘of elevated credit risk,'” says CreditSesame.com’s John Ulzheimer. The average APR is about 12 percentage points lower.

There are a couple reasons why Walker’s Barclaycard APR could be so high. Harrow suggests one scenario: Walker could have “missed one or more credit card payments, causing a penalty APR to kick in.” Such penalty rates are often between 27% and 29%, he notes.

Or Walker could just have a low credit score. Since credit cards are not collateralized, low-credit borrowers are charged higher APRs.

If Walker has bad credit, he has a couple of options.

One is to take out a debt consolation loan. “With a consolidation loan, the goal is to get a personal loan at a lower rate than what he’s paying now on his cards,” says credit card expert Beverly Harzog, author of The Debt Escape Plan. “He’d combine both balances into one loan. This simplifies life, and hopefully he’ll save money on interest.”

Walker could check out the personal loan rates available in Madison, Wis., by looking at a site like Bankrate.com.

But there’s no guarantee he’d get a lower interest rate on a personal loan, in which case he’d move onto an old-fashioned Plan B: simply hunkering down to pay off the debt. Harzog recommends he tackle the Barclaycard first, since it has the highest APR. “He’ll need to pay much more than the minimum on that card while paying the minimum on the Bank of America card,” she explains. When he finishes one card he can move onto another.

Of course, this will require some discipline, as well as adherence to a budget and a new understanding of what credit means and how to use it. “As he pays off his debts, I urge him to get to the root of the problem, or he could end up in debt again,” says Harzog.

Americans of all stripes fall on hard times, resort to poor spending habits and need help regaining their finances. Sometimes that person is your neighbor, or your colleague — and sometimes it’s the man on TV asking for your vote for president.

MONEY Debt

California Debt Collectors Will Refund $4 Million to Victims

Asset Capital and Management Group was accused of posing as process servers or employees of law offices and threatening to arrest consumers.

Do you need a feel-good story about justice today? Of course you do – who doesn’t? This one is particularly satisfying to anyone who has ever been wrongfully harassed by a debt collector seeking payment on an old debt.

Earlier this year, the Federal Trade Commission (FTC) reached a settlement with the former Asset Capital and Management Group, a California debt-collection group that violated both the Federal Trade Commission Act and the Fair Debt Collection Practices Act (FDCPA). As a result of the settlement, almost $4 million in refunds are being sent to more than 95,000 consumers that were harmed by the group’s practices.

The $4 million comes from personal assets of the four defendants (Thai Han, Jim Tran Phelps, Keith Hua and James Novella), as well as assets frozen from Asset Capital and its network. According to the FTC press release, Asset Capital and Management used “a sprawling network of intertwined companies and dozens of fictitious names” in their efforts to recover debts they had purchased from various creditors.

Read next: How to Protect Yourself From the “Epidemic” of Sleazy Debt Collectors

The group used a series of belligerent and threatening tactics to attempt to recover the debts, all in violation of the above acts. The tactics included the following:

  • Notification Failures – The group did not notify consumers that the callers were attempting to collect a debt or that the consumer has a right to dispute the debt and seek verification of the debt.Debt collectors are required by the FDCPA to send written notification about the debt that includes the creditor name and the amount. If you ever receive a call from a debt collector without this information, demand they provide it and do not engage them any further until they do.
  • Making Threats/Posing as Process Servers – The group posed as process servers or employees of law offices and threatened consumers by claiming to be delivering papers related to a lawsuit, and in some cases threatened to arrest the consumer (which even a real process server does not have the power to do). Other threats included potential wage garnishment and property seizure (again, outside the authority of a real process server). All of these efforts were intended to get the consumer to pay a debt through fear or embarrassment. Debt collectors are allowed to contact you, but they are not allowed to harass you or impersonate officials.
  • Information Disclosure – The group also disclosed information about the debt to consumer’s employers, family members and co-workers. By disclosing information about the debt to these non-relevant parties, the group violated Fair Credit laws. Debt collectors can contact third parties about your basic information – address, home phone number and place of employment – but not about the debt or its details. Not only did the settlement extract redress payments from the defendants, it also barred them from future debt-collecting activities and prohibited them from “misrepresenting any relevant fact in connection with promoting or selling credit repair, debt relief, mortgage assistance relief or lending services.” In other words, the defendants are being kept out of similar industries where scam artists can thrive.

Unfortunately, while these particular scam artists have been stopped, there are still many others out there who are willing to prey on those who don’t know their rights. Do not be one of those people – know your rights under the FDCPA and fight back against the scam artists. Report any illegal activities to the FTC and perhaps you can help stop others from being victimized in the future. Be a part of the next feel-good story.

Read next: Can a Debt Collector Come After Me If I Never Got a Bill?

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MONEY Debt

A Whopping 80% of Americans Are in Debt

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Adam Gault—Getty Images

But more than half have the "good" kind of debt.

The vast majority of Americans are in debt, according to a report from Pew Charitable Trusts published in July. For the most part, that debt comes from what many people would call a good thing — homeownership. Of the 80% of Americans with debt, 44% have mortgage debt. Overall, the median debt load among Americans is $67,900, overwhelmingly driven by mortgages (the median home loan balance is $103,000).

Still, Americans have a lot of non-mortgage debt, too, particularly young Americans. Only 33% of millennials (people born between 1981 and 1997), have home loans. In fact, millennials are much more likely to have student loan debt (41% have it), car loans (41%) or credit card debt (39%) than they are to have a mortgage. Among all other generations, mortgages are the leading component of consumer debt.

Credit card debt is still incredibly common among American consumers — with 39% of Americans reporting unpaid credit card balances, it’s not far behind mortgages as a leading contributor to consumer debt. While those balances are much lower than those for student loans, the high interest rates and revolving nature of credit card debt can make it a serious threat to consumers’ financial health.

Having debt isn’t inherently a problem, but it can quickly become one if you’re living beyond your means or not working toward bringing your balances to zero. Carrying a lot of debt — relative to your limits for revolving credit accounts — can have an adverse affect on your credit scores, which can subject you to higher interest rates on debt in the future. Here’s a calculator that can show you how your credit scores can affect your lifetime cost of debt. Keeping balances low relative to your credit limits — no more than 30%, but ideally less than 10% — can be beneficial to your scores. As you pay off credit card debt (assuming you don’t add to it at the same time), you should see your scores start to improve. You can see how long it will take you to pay off your credit card debt and how much you can save by adjusting your payments using this credit card debt payoff calculator.

If you’re among the 80% of Americans with debt, the best thing you can do is focus on managing your debt and credit well. Taking out loans or using credit cards can be a great financial strategy, but it’s important to go after the balances with a plan. Regularly review your credit score so you understand how your debt affects your credit standing, and set realistic goals for paying your debt down, while saving up for your future.

More From Credit.com

MONEY Debt

10 Characteristics of Debt-Free People

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Bertrand Demee—Getty Images

They aren't afraid of credit cards but realize they're a double-edged sword.

From time to time we bring you posts from our partners that may not be new but contain advice that bears repeating. Look for these classics on the weekends.

The other day a friend and I were discussing why some people manage to live their lives in complete control of their finances, while others are continually struggling to get out of debt — no matter how much money they make.

Financial freedom can be achieved by anybody, regardless of their income level. So what is it that separates the financially free from the financially inept? How come there are some families out there making ends meet with household incomes under $40,000 and no debt on the books — or at worst, a single mortgage payment — while others make millions per year and can’t keep their financial heads above water?

The truth is, there is no single trait that determines who will successfully manage their personal finances and those who won’t. People of modest means who know how to properly manage their finances have some combination of multiple characteristics. Here are ten of the biggest:

They’re detail-oriented. People who are in a good financial position always pay close attention to their personal finances. They know how much they earn and they keep track of how much they spend and where every penny goes. Because they’ve got a good handle on the state of their personal finances, they are less likely to buy something they can’t afford.

They realize debt is a mortgage on their future. Debt is a form of indentured servitude where we end up sacrificing our future earnings in exchange for instant gratification. Financially savvy people understand that, in most cases, such a trade almost always ends up being a Faustian bargain.

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They’re pragmatic. More often than not, folks who are debt-free are also practical people. As such, they understand the meaning of value. For example, they tend to look at cars as merely a means to get from point A to point B — so they’ll refuse to buy a Lexus when a Corolla will do. In the same vein, they won’t pay double for designer jeans that have the same lifespan as the no-name alternatives, and they’re open to buying store-brand groceries.

They’re self-reliant. Most people who work hard to maintain a life of financial freedom take pride in being self-reliant. They live within their means and save as much money as they can for rainy days and lean times.

They aren’t addicted to shopping. A lot of people get a high from spending money — whether they have it or not. And while such a high is not physically destructive like, say, a drug or alcohol addiction, an uncontrolled shopping habit is almost always financially calamitous.

They’re patient. Debt free people don’t achieve that state because they’re impulsive shoppers, or looking for instant gratification. If the money for something isn’t available, then they save and wait.

They’re self-confident. Financially free people never let their self-worth be defined by their possessions. They understand that their status in life is more accurately conveyed by self-confidence, rather than dubiously deceptive displays of wealth.

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They understand that credit cards are a double-edged sword. People who are in control of their personal finances aren’t afraid of credit cards. In fact, they embrace them. And while the financially savvy understand the incredible benefits that credit cards provide their owners, they also know that if they fail to pay them off in full at the end of each month, they will pay a heavy price. This knowledge fosters a healthy respect that keeps their credit cards from being abused.

They believe in personal responsibility. Financially responsible people refuse to make excuses. They know it’s their responsibility to put aside funds for unexpected events such as a job loss or unforeseen accident — and if they don’t they’ve got no one to blame but themselves. Short of a catastrophic medical issue or natural disaster, they also understand that living within one’s means goes a long way towards ensuring their ability to control their own destiny.

They’re not materialistic. Yes, the pursuit of expensive toys and other possessions can make life more luxurious. But at what cost? Debt-free people understand this, which is why they tend to live simpler lives that focus on the joys of family, rather than the accumulation of material possessions.

This is by no means an exhaustive list. However, the more of these characteristics that a person possesses, the more likely they are to be financially free. How many apply to you?

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Verizon Lost My Cable Box and Says I Owe $2000

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What should I do?

Question: Help! Verizon lost the cable boxes and remotes I returned to it via UPS after I moved out of my apartment. Now it’s trying to stick me with a $2,000 bill, even though UPS tracking showed it had been delivered, and even though the Verizon representative I spoke to agreed and updated my account to show that they had received the equipment.

Here’s the problem: I discarded the UPS tracking information after speaking with the Verizon rep in early December, never dreaming that it would come back to haunt me on my January bill.

Verizon is the one that provides the UPS return shipping label; I asked Verizon to connect me with the department that generates these shipping labels, naively thinking that they would have a record of mine. The three representatives I spoke with said they had no contact with the departments that handle equipment and shipping and were unable to connect me.

I don’t understand why the tracking number on the UPS shipping sticker that Verizon provides isn’t automatically linked to my Verizon account.

Meanwhile, UPS says it can’t track packages without the tracking number. My name and address are insufficient.

I’m at my wits’ end. As a young professional, I can’t afford the $2,000 Verizon is demanding. As a human being, I feel bullied by a big corporation that thinks it’s easier to stick me with the bill for their mistake. Is there any way to find that UPS tracking number? — Jean Schindler, Arlington, Va.

Answer: Verizon shouldn’t charge you for equipment representatives say it’s already received. But how can you prove it was received? Only the UPS receipt would work, and UPS can’t furnish you with a new one.

You’ve painted yourself into a little corner.

Looking back, you probably should have kept the receipt until your next bill. But there was no way to know you’d have this problem. Future Verizon customers would be wise to keep your case in mind; don’t throw away any receipts until at least one billing cycle is complete. You might even consider taking a picture of the paperwork with your smartphone. Got that?

I think UPS bears some responsibility here. I mean, here’s one of the most sophisticated companies, in terms of information technology, and they can’t generate a new receipt? They also can’t find a record based on an address? Did they use a carrier pigeon to deliver the receipt the first time?

Your next step would be an appeal to someone higher up at Verizon. I list many of the Verizon corporate contacts on my site. You can also turn to my consumer help forum for assistance from an advocate.

I contacted Verizon on your behalf. A representative was able to track down the equipment you returned. Verizon apologized for the “inconvenience” and credited you for the fees billed in error.

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5 Black Marks That Can Sink Your Credit Score

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Troy Plota—Getty Images

Derogatory information stays on your credit report for 7 to 10 years.

When you’re looking to apply for a loan, lenders place a major emphasis on your credit report. Your credit history includes your amount of debt and payment history, as well as other factors, and lenders look to your past credit behavior to see whether you’ll be a good credit risk going forward. There are some things on a credit report, however, that could discourage a lender from approving you. These “black marks” could make it difficult to get approved for a loan, and could even keep you from achieving certain financial goals. If you’re planning to apply for a loan but you’ve had credit challenges in the past, here’s what you need to know about credit report black marks.

What Is a Black Mark?

Any item that may be considered negative by creditors is often referred to as a “black mark” or “derogatory information.” These items indicate some sort of negative financial behavior, such as failing to pay debts on time, and they remain on your credit reports for an extended time, typically anywhere between seven to 10 years. Some of the most severe derogatory marks include:

Bankruptcy

Bankruptcy is essentially a legal process designed to reduce or eliminate a consumer or business’s debt — or make it easier to pay off. While it does provide some form of relief, bankruptcy is considered to be one of the most damaging marks to have on your credit report. Chapter 7 bankruptcy will stay on your credit report for 10 years while Chapter 13 bankruptcy will remain for seven years from the filing date.

Foreclosure

In the event that a borrower falls significantly behind on mortgage payments, the lender may opt to foreclose on the home. If the borrower fails to pay off the outstanding debt or cannot sell the home via short sale, the property then goes into foreclosure. A foreclosure will remain on your credit reports for seven years.

Collections

When accounts are reported as being sent or sold off to a debt collector, they are considered to be in “collections.” This usually occurs when a creditor is having difficulty collecting payments on a debt. A collections account will typically stay on your report for about seven and a half years from the date it first became late.

Tax Lien

Simply put, tax liens are when the government places a lien against some or all of an individual’s assets due to them neglecting or failing to pay a tax on time. Tax liens can remain on your credit report indefinitely, though credit reporting agencies often remove them after 10-15 years. Once you’ve paid off the debt’s balance in full it will take seven years from the date it’s paid for the mark to be removed. However, you may qualify to have the lien removed from your credit reports sooner, depending on the circumstances.

Civil Judgment

Although criminal records aren’t included upon your credit report, civil judgments (such as a civil lawsuit or child support case) are. A civil judgment is a ruling against you in a court of law that requires you to pay damages (typically in the event that you lose a case or neglect to respond to a lawsuit). A civil judgment stays on your credit report up to seven years.

What You Can Do About It

While derogatory marks can cause your credit score to take a major hit, they won’t keep you down the entire time they’re on your report. Maintaining good financial habits and keeping the rest of your credit in good health can help you build things back up. As negative information becomes older, it tends to have less of an impact on your credit scores, provided you have other current positive credit references. Paying down high credit card balances and keeping your debt usage ratio low, and making your payments on time are all things that can help you build your credit.

It’s also a good idea to get your free annual credit reports from each of the three major credit reporting agencies to check for inaccuracies and to generally stay informed. Checking your credit scores regularly can also help you track your progress.

While it might be hard at first, it is possible to return to good financial standing with a black mark on your credit report. Provided you strive to maintain good credit behavior, you should start to see your credit score start to inch upwards and your chances of securing a loan increase. Not only that, but the habits you develop during this period can hopefully help you avoid another derogatory mark in the future.

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