The world of credit is a complicated and acronym-filled jungle.  In fact, the first person who can successfully decipher these credit related acronyms will officially be conferred the title, “credit acronym expert.”  Please use the comments section below for your answers.

Here goes…FCRA, FACTA, AA, FACS, CROA, DSCPA, FICO, SOL, EFX, CRA, CRO, RMCR, CDIA, FDCPA, TILA, ECOA, TU, XPN, and DPD.  I’ll reveal the answers in my next Mint.com article.  I’ll even give you one just to show you I’m a nice guy…SOL means “Statute of Limitations” and it’s the subject of this article.

“Statute of limitations” refers to the amount of time that can pass after some sort of event before legal actions regarding that event can no longer be initiated.  So for example, in the credit world, if you incurred some sort of contractual debt in the state of California and defaulted, you can’t be sued for collection after 4 years.  After the statue of limitations has expired that debt becomes a “time barred debt,” meaning the lender’s ability to sue you for collection has passed.

Now, don’t get me wrong: I’m not talking about the amount of time it can be reported to the credit bureaus and I’m not talking about the amount of time the lender or collection agency has to collect on the debt.  “Time barred” just refers to when the court loses the ability to legally force you to pay.

Here’s the straight info on time barred contract debts:

It’s important to point out that where you lived when you incurred the debt may take precedence over where you currently live.  “Generally speaking, the statute of limitations of the state where the contract was formed will control if the contract is silent on the issue,” says Sean P. Flynn, Esq., a shareholder with Ropers, Majeski, Kohn & Bentley, PC, a law firm that represents defendants in Fair Debt Collection and Fair Credit Reporting litigation in California and New York.

If you signed a contract with a bank while you lived in Mississippi but then moved to Ohio then the statute of limitations could be based on Mississippi law.  And that’s good news because you can be sued for only 3 years in Mississippi versus 15 years in Ohio.

Here’s the straight info on how long defaulted debts can be reported to the credit reporting agencies. It’s pretty simple:

When Do You Not Pay Your Bill?

If the collector can’t sue you for payment any longer then do you really need to pay the debt?  I would argue that you should always pay your obligations as long as you’re really the one who owes it.  And, just because they can’t sue you it doesn’t mean they can’t report it to the credit bureaus.  Having a paid-off debt is better than having an unpaid debt. In fact, some creditors will require that you pay off collections before they’ll do business with you, regardless of your credit scores or the age of the debt.

Will Creditors Really Sue Me for Non-Payment?

The short answer is “yes.”  The better answer is “If you owe a creditor more than $1,000 in defaulted debt and you’re ignoring them, then you stand the risk of being sued.”

The higher the dollar amount, the better (or worse) your odds of getting sued.  A fantastic proxy for “collection aggression” is the number of FDCPA (Fair Debt Collection Practices Act) and FCRA (Fair Credit Reporting Act) lawsuits filed against collectors and creditors for illegally attempting to collect debts and reporting of those debts to consumer credit reports.  According to Jack Gordon, President of Michigan based WebRecon, a company that tracks FDCPA and FCRA lawsuits, “there were 12,213 FDCPA and FCRA lawsuits filed in 2010.  That’s a record number.”

What this means is collectors were very aggressive in 2010 and there’s really nothing to indicate that they’ll calm down in 2011.  And while many of these above-mentioned lawsuits are baseless shakedowns of collection agencies, it’s no secret that collectors have become more industrious with their tactics, including litigation.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit.

Goals

A great place to start as people are assessing their goals for the New Year is, well… Mint Goals, launched this summer to help people achieve what they want in life. We help people understand how much they need to save, develop a plan to achieve specific goals more quickly, and track their progress. We currently have nearly one million Goals active in the product, and the most popular by far is “Pay Off Debt.” No surprise, given how consumer debt burdens the country.
 
Looking at how the Goals rank, I ‘m proud to see people are making sound decisions based on the fundamental principles of personal finance. The top goals are for essentials – a clean slate and protection of their backside – so users can feel secure in taking the next step to achieve what they want in life.

The top three Goals set by Mint users:

1.     Pay off Debt

2.     Emergency Fund

3.     Retirement

Budgets

One of the things we enabled with the launch of Goals was for people to tie their day-to-day spending to long-term Goals – showing dollar-for-dollar how budget adjustment impact when they’ll achieve what they’re working toward. Suddenly, the latte vs. regular coffee debate takes on more meaning, when one sees the change in daily spending could mean retiring years sooner, or leaving for vacation with the entire thing paid for in advance.
 
To keep budgeting simple – and make it something you can stick to – we recommend finding one or two problem areas where you can cut back. For our users – and for myself personally – that often means food! Six of the top ten budgets set by users relate to food and dining – from groceries to fast food to alcohol and bars. The best thing is that it’s an area where you can really control spending with a few adjustments, like cooking more, ordering takeout instead of sitting to eat, or buying ingredients in bulk. Great news is that our data shows people are making the changes they need to stay within budgets, with great success:

Top Mint budgets and the percentage of people who stuck to them last month:

1.     Groceries  64 percent budget compliance

2.     Restaurants  67 percent budget compliance

3.     Gas & Fuel  67 percent budget compliance

4.     Fast Food  66 percent budget compliance

5.     Entertainment  74 percent budget compliance

6.     Clothing   64 percent budget compliance

7.     Movies & DVDs  80 percent budget compliance

8.     Alcohol &Bars  77 percent budget compliance

9.     Coffee Shops  75 percent budget compliance

10.   Food & Dining  40 percent budget compliance

The compliance numbers make me really proud, because it shows that we have created a tool that helps the majority of our users set and stick to budgets. In fact, a full 59 percent of Mint users stayed within all their budgets for consecutive months heading into this holiday season.
 
The two biggest problem areas for people were shopping and food & dining – both discretionary areas over which people have control, and both difficult to stay within during Thanksgiving and early holiday shopping. But as a refresher for people looking for a fresh start in the New Year:

Mint.com’s Three Principles of Personal Finance

1.     Spend less than you earn. To do this, you need to see where you spend – whether with a free online software like Mint.com, a desktop solution like Quicken, or with pen and paper, getting a true, clear picture of where money goes is the necessary first step toward better financial decisions.

2.     Make money work for you. Optimize rewards and interest rates on all your financial relationships, or you’re straight up leaving money on the table.

3.     Protect your downside. Too many people were caught unprepared for job loss in these past years, without an emergency fund or the proper insurance to keep them safe. Be sure you’re prepared for the unexpected.

Dropping Debt – for Cold, Hard Cash

If the data’s not compelling enough to prompt a financial resolution in the New Year, Mint.com has thrown in additional incentive to get people started. The Drop Your Debt challenge pits city teams against one another to see which city can most improve its debt-to-savings ratio.
 
The ten selected cities are listed below according to the current rank of the contest, but anyone can still join. The two largest awards will be granted regardless of locale: for the person who refers the most people to the contest ($5,000), and in four random drawings of $1,200 apiece.  Enter today http://mint.promo.eprize.com/dropyourdebt/. 

1. San Francisco – up two positions since November
2. Seattle – dropped this month from the leading spot
3. Washington DC – dropped one spot since November
4. Chicago
5. Boston
6. Minneapolis – making a move, up one spot since November
7. New York – climbed two spots since last month
8. Philadelphia
9. Los Angeles – climbed from the bottom this month
10. Atlanta  - plummeted four positions

photo: SqueakyMarmot

Got the holiday spirit yet? Walk into a shopping mall and you’ll walk out with plenty. Retailers are already playing Christmas carols, sporting red and green decorations and, of course, with America’s biggest shopping holiday (a.k.a. Black Friday) right around the corner, you’ve got ample opportunity to succumb to one of the worst sins in personal finance: credit-card abuse.

Millions of Americans are in danger of falling in debt over the holidays, if anything, because of the sheer pressure to buy, buy, buy.

So this week, we decided to focus on just the opposite: let’s talk about reducing debt and managing credit wisely. Below, we feature four debt questions from the Mint Answers community, along with some of the responses from members like you.

Click on the links to read more answers or to chime in with your response.

What credit card should be paid off first? Higher bill or higher interest?

I have two credit cards. One has a higher balance, with a lower interest rate than the other. The other has a lower balance, but high interest. Which should I try to pay off first? Making minimum or close to minimum payments is getting me nowhere.

Answer:

Financial math says you should pay for the card with the higher interest rate first.

Debt Snowball says you should pay the lowest balance off first then roll the payments into the next lowest debt.

Both methods point to the same card in your situation.  I can’t think of any reason to pay the low interest/high balance card first.

More answers to this question>

Should I cancel my credit cards?

I have two credit cards that I signed up for to raise my credit score. I have to pay monthly for them, so I really would like to cancel them. However, I was told this could hurt my credit. Now that my credit is in better shape, should I keep these credit cards or cancel them?

Answers:

1. Part of the score is based on a percentage of how much of your total available credit is being used.  By canceling cards you will reduce available credit which can hurt your score.  Additionally, the length of time an account has been open also has a big effect.  A lot of people (including me) keep around a card that isn’t the best one they have, but is the oldest. 

As for your question on whether or not you should cancel them…that’s up to you and your life circumstances.  Although I have great credit, I have never applied for a loan and probably won’t for 10 more years.  I think I just maintain my credit score for the sake of maintaining it.  But hey, never know.  Life happens and you might need a strong credit score when it does.

2. If you are paying a fee, cancel them.  Period.

If you can’t get a card without a fee, let your credit repair itself by paying other bills on time.

Never, ever, pay a fee for the sake of “protecting” your credit score.  It will never make enough of a difference to offset the cost.

More answers to this question>>

Should I cash in my 401K to pay off credit cards?

I think my credit cards are charging me more interest than my 401(k) is earning. Should I cash in the 401(k) to pay them off or will that hurt me more in the long run?

Answers:

1. Your credit card is most definitely charging more than your 401(k) is presently earning.  But consider the implications of cashing your 401(k).  It gets taxed at the marginal tax rate as income tax, then you pay an additional 10% penalty on top of that. 

To use a real example, I am in the 25% federal marginal tax bracket.  That means 35% of the 401k cash out amount is taken from me.  That’s before we consider state taxes.  Cashing out will cost you quite a bit, consider stopping contributions and tightening your budget until the debts are paid off, if possible.

2. Can you take out a loan from your 401(k)?  If so, this is almost certainly the better option.  You wouldn’t pay any taxes on that, and you would be getting a fixed return on your money at a time when the market is poised for a correction.

It would be very hard to justify cashing out your 401k to pay off credit cards.  Depending on the exact circumstances and numbers, it may even be better to file for bankruptcy (though not typically.)

If you are getting any decent matching contributions (.5:1 or above), do not cut down what you’re putting in below that level, or you’d be losing out on more money by doing that than by cashing out and taking the tax hit.

More answers to this question>>

How do I escape the Debt cycle?

I have experienced significant debt, as have most Americans in this day and age. I have attended classes trying to teach myself how to become debt free, but many principles of the classes don’t translate well into daily practice. Do you have any advice on how to better follow guidelines and advice set forward in debt management programs when considering the randomness of life?

Answer:

1) Stop borrowing money.
2) Pay of your debt.

If your expenses exceed your income, start getting rid of expenses until they don’t (and as many more as you can after that.)  Don’t buy things you don’t need.  The less debt you have, the more you can afford on the same income because you’re not throwing money away on interest.  Which of these concepts are difficult?

More answers to this question>>

Do you have a money question that you feel has no black-or-white answer? Go to Mint Answers and ask away! While you’re there, feel free to answer questions from other community members. Come back often, as we introduce new enhancements to this feature.

photo: AMagill

Beyond the turmoil of mass layoffs, rising unemployment and plummeting real estate values, the stock market crash of 2008 and ensuing financial crisis brought many Americans into the harsh reality of living in debt. As we struggle, as a nation, to recover from the economic duress we are now facing, a great many families also struggle to overcome debt.

As they say, the family is the bedrock of society. Help the family overcome debt, and we help the nation get back onto its feet. Here is a collection of resources that may help you gain a fresh perspective on beating debt.

We All Have Blind Spots from DaveRamsey.com gets into the heart of why we have debt: fatal financial blind spots. With today’s capitalistic society dangling the “Faster, Bigger, Better” mantra in front of everything and everyone, we need to choose to resist. We need to see our finances through realistic lenses. Learn from this article by Jon Acuff and be honest with yourself, should you need a financial paradigm shift.

Could debt be good? Lazy Man And Money shows a different perspective on debt in his article Finance 101: Good Debt vs. Bad Debt. It explains which loans or credit options you should try to avoid, and what better alternatives you can choose. Choosing to deal with “good” debt versus “bad” may actually be a shrewd way to handle one’s finances.

For those who’d like to start paying off their debt, here are 3 Strategies To Envision Your Way To Debt Freedom. As they say, everything really starts with a thought. So let’s up the ante and create an entire plan for reducing your debt. Engineer Your Finances shows you how.

One other crucial component to overcoming debt is the blueprint or game plan you develop to address it. Check out Do-it-Yourself Debt Reduction at Credit.com. This is a detailed plan which tells you how to evaluate your finances and to negotiate with your creditors. It suggests strategies that you can try on your own to eliminate your debt.

It’s also good to realize what may stop you from going full throttle on your efforts: 31 Causes Of Failure #5: Lack Of Self Discipline by BripBlap shines a light on one of the most formidable obstacles you have to financial freedom. Take note of the lessons in this article so you can strengthen your commitment to your cause.

As we’ve mentioned, it’s important to keep motivated in order to stay dedicated to debt reduction. Here are 3 Steps to Staying Motivated While Paying Off Debt by Couple Money.

Should you need more incentives and motivating factors for getting out of debt, you may want to think about how Debt is A Surprising Cause of Obesity. This article shows us that indebtedness is a factor in causing obesity in people. Why? It’s because having less money (which is typically the case for those who have a lot of debt) can lead to making poor food choices. High-calorie, high-sugar foods tend to be cheaper, while healthier options tend to cost more. Check out Deliver Away Debt for more on this matter.

Last, a great plan to obliterate debt requires great tools to get it executed. The Digerati Life suggests that we Use A Debit Rewards Card To Skip Holiday Debt & Save. It can effectively reinforce our efforts to avoid debt and to eventually become financially free.

Imagine yourself moving from debt to financial freedom. You’ll get rid of the stress as the creditors are pushed out of your life. When you’re worrying less about money, you’ll be able to make more time for family and friends, stick to a better diet, improve your health, take worry-free vacations, and even obtain a peaceful night’s rest. Let’s keep our eyes on those goals!

Silicon Valley Blogger (SVB) runs The Digerati Life and The Smarter Wallet, where she writes about  general personal finance topics such as investing, budgeting, debt management and small business ideas.

photo: iStockphoto

The FDCPA is the Fair Debt Collection Practices Act. Enacted in 1977, it’s the Federal law that protects consumers from abusive collection practices from third-party debt collectors. There are also many states that have similar protective statutes. For example, those of you who live in California enjoy the FDCPA protections, as well as those afforded to you by the Rosenthal Act.

I certainly hope you’ll never have to deal with collection agencies — but if you do, it’s important that you understand these rights under the Federal act.

Communication Must Occur at Convenient Hours

Collectors may not contact debtors before 8am or after 9pm local time, based on where the consumer is located. That means no calls at 8am Eastern Time to a debtor living in Texas and no calls at 10pm Eastern Time from a collector working in California.

Calls Cannot be Made to the Debtor’s Workplace

There is an exception to this rule. If you give the collector permission to contact you at work or if communicating with the debtor at work isn’t disallowed by their employer, then, in general, it’s allowed. If you tell the collector that you are not allowed to receive calls at work or if you could get in trouble because of their calls, then they must stop.

Disclosure to Third Parties is Not Allowed

In general, the collector is not allowed to communicate with anyone other than the debtor regarding the debt. In other words, the collector can’t call your neighbors and tell them that you owe $5,000 in past due credit card charges. I’ve had some interesting cases where I’ve served as an expert witness that have included evidence of messages left on answering machines. It was argued that this is a violation of this provision because someone other than the debtor was able to listen to the messages.

They Must Stop if You Ask Them

Despite beliefs to the contrary, consumers can actually demand that the collector stop communicating with them. This must be done in writing, not verbally. So, you can’t just tell them “I demand that you stop calling me.”

There are two exceptions to this rule. The collector may contact the debtor after they’ve received a valid written demand to cease communications to let them know that the collector is not attempting to collect the debt any longer. And, they may also notify the debtor that they attempt other methods normally used by collectors to collect debt. Read between the lines…this means a potential lawsuit from a collection attorney.

No Abusive Behavior

We’ve all seen the hidden videos where collectors are threatening to have you thrown in jail or take away your children if you don’t pay your debts. This is clearly not allowed. They are also not allowed to threaten violence, use profanity or insensitive remarks, publish your name as someone who won’t pay their bills (credit reporting is an exception), or call you over and over in an abusive manner. I had a case where the collector called the consumer over 200 times in one year. Is that abusive?  Before you answer, remember that 200 calls over 365 days is much less than one phone call per day. What do you think?

They Must Disclose Who They Are

If you’ve ever received a call from a debt collector it was probably prefaced with “I’m calling from XYZ and the purpose of this call is to collect a debt.” And, if you’ve ever received a letter from a collection agency it probably had language that disclosed that the communication was from a debt collector and that any information they receive may be used in furtherance of collecting a debt. These are required disclosures. They can’t sneak up on you.

No Misrepresentations

What gets a collector in hot water very quickly is any act of dishonesty. Collectors are not allowed to:

1. Imply that they are with a governmental organization

2. Misrepresent the balance of the debt

3. Pretend to be an attorney

4. Imply that non-payment will result in garnishment unless the collector intends to pursue garnishment

5. Threaten legal action if none is intended

6. Imply that not paying debt is a criminal offense

Must Show the Debt As In Dispute, If So

This is an obligation under the Fair Credit Reporting Act (FCRA). If the debtor challenges the validity of the collection the collection agency must show the account as being in dispute not only within their own records but also along with the account as reported to your credit files. This is a fairly common FCRA violation in the cases I’ve been involved with.

There are actually several more rules outlined in the FDCPA but these are the highlights and the more common violations. In fact, we’re on pace to hit 12,000 FDCPA lawsuits this year, which is 3,000 more than last year. So what do you think?  Any interest in owning a collection agency?

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and the author of the “credit history” definition on Wikipedia.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  He has served as a credit expert witness in more than 70 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.

photo: Noeluap

Last week the Wall Street Journal sent a message that many of you needed to hear about ten years ago.  They identified that student loan debt has officially surpassed credit card debt and now totals some $830 billion.  It seems like irresponsibility has jumped the track and now resides in the classroom.  This is reckless spending in the name of education.  I’ve often been accused of not sugarcoating my financial opinions and this will be no different.  Here’s why I’m often the most unpopular guy in the room.  Buckle up.

Tuition is a product, plain and simple.  And just like any other product you have to be responsible with your choices.  Do you buy a Mercedes Benz when you can only afford a Hyundai?  Do you buy a $1,000,000 home when you can only afford a $150,000 townhouse?  Then why in the world would you ever let your 18-year-old kid, who is no longer allowed to get a measly credit card on their own, to walk blindly down the path of financial suicide just to go to an expensive school?    

I’m about to give you the tough love your parents didn’t give you.  And I realize it might be too late for you, but ignoring this doesn’t stop the cycle. 

Here’s the bottom line on this issue: it’s easier NOT to get into this debt than it is to deal with the debt once you’re in it.  As of today, you can’t discharge government guaranteed student loans in bankruptcy.  That means you WILL pay it back if it takes the rest of your life.

Think About Community College for Your Core

You don’t need to take English 101 and Chemistry 101 at Duke.  You can take them at a community college or a state school and then transfer.  Your core curriculum doesn’t need to cost you the same as your final two or three years.  This is like paying the same amount for preseason NFL tickets as you do for regular season games. 

Just like frugal car buyers never buy a new car and always get something that simply solves the “point A to point B” problem, so should you take a frugal approach to a college education.  Cheaper doesn’t equate to substandard so don’t swallow that pill.  There is absolutely nothing wrong with community college for your core and an in-state state school for your major.

And yes, I know some schools won’t let you transfer those core credits, but many will.

Wake, Stanford, Duke, Come on!

Why won’t you be reasonable with your college choices just like you should be reasonable with every other credit decision?  No, you don’t need to go to Wake Forest at $40,000 per year.  No, you don’t need to go to Notre Dame at $40,000 per year.  No, you don’t need to drive that new BMW.  No, you don’t need to run up $20,000 in credit card debt.  Is there really a difference?  There’s nothing wrong with an in-state state school, with community college for your core.  Going to an expensive school isn’t a birthright and parents who sit on their tongues and let their kids head down this “expensive is better” path are 100% to blame.     

College Degree, Reality Check! 

Parents and advisors need to step up and give their kids, who don’t know any better at 18, a dose of reality about college degrees, which are basically nothing more than an “entry pass” to the bigger job market.  You don’t need a fancy five-year degree (and maybe even grad school) that ends up costing you $100,000 in student loans unless there’s real ROI at graduation (law, medicine, nursing …something that pays off and practically guarantees you a job for as long as you want one). 

Choose a degree that gets you in the workforce door and be done with it.  If you’re still depending on your degree to get a job five years after you graduate then you’re not doing well.  Experience is the real selling point eventually. I’m quite certain I’ve never been hired because of my impressive B.S in Criminal Justice from the University of West Georgia.

For The Haters

Save it.  I don’t come from money and I didn’t go to an expensive school.  I worked summers to help pay for my cheap, in-state tuition.  Getting into student loan debt just to go to a more expensive school seemed unreasonable to me and I’m eternally grateful for the brief moment of clarity when my father asked me, “So John, where are you going to school?”

This is why you guys love me…because I’m not afraid to be the least popular guy in the room saying what you need to hear.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and the author of the “credit history” definition on Wikipedia.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  He has served as a credit expert witness in more than 70 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.

photo: Joshua Davis

YOUR DEBIT CARD MAY NOT WORK THE SAME WAY ANYMORE.

The message has been everywhere: on the ATM screen, in the mail, on big signs at my local branch, possibly in my dreams. It’s warning me that unless I opt in for overdraft coverage, as of August 15 my debit card will no longer carry that feature. Neither will yours.

Overdraft coverage is a feature that allows a bank to approve a debit card transaction even when there isn’t enough money in the checking account to pay for it. For the privilege, the bank then charges the customer a fee (typically about $35).

Here’s how I’d try to sell it if I were a bank:

It’s a dark and stormy night. Your car breaks down on a lonely road outside the state prison. With one bar on your phone and the battery fading fast, you call for a tow. The tow truck driver swipes your debit card. Declined. “Sorry, pal,” he says before driving off, “not enough cash. You should have gotten overdraft protection.” Your spouse is in the car and leaves you for being such a cheapskate. And did I mention the prison?

If you’ve incurred overdraft fees in the past, your bank is likely to lean on you hard to continue the coverage, because in their eyes, you’re like a big tipper.

For anyone fed up with overdraft fees, next week brings good news:

1. As of August 15, customers will be required to opt in if they want to continue paying those $35 fees for their dark-and-stormy-night (or latte and bagel) needs. In other words, if you don’t do anything, you’ll lose the ability to overdraw your account with everyday debit transactions next week.

This doesn’t affect checks or recurring transactions, only ordinary debit card point of sale (i.e., cash register) and ATM usage. Without overdraft coverage, those transactions will simply be declined; bounced checks will still incur a fee.

Even if you think you’ve opted out or never opted in, double-check: some banks have been accused of deceptive practices by Consumers Union and other consumer groups.

2. Some banks, such as Bank of America (BAC), have taken the high road and have simply gotten rid of overdraft coverage for everybody. (BofA still offers overdraft protection, which I’ll explain in a minute.)

Of course, there’s also bad news:

1. The new rules don’t apply to business accounts. I presented my small business debit card to my banker; she told me I couldn’t opt out on that card.

2. The new rules do nothing to rein in tricks like the bank clearing your transactions from largest to smallest and thereby hitting you with multiple overdraft fees in one day. Some banks, such as JP Morgan Chase (JPM), have voluntarily changed this policy, but others have not.

3. Banks are getting their message across, according to a May survey by Credit.com, in which 48% of respondents said they would opt in. Customers are responding to efforts like this one from Acton Financial Services Marketing, which helps banks convince customers to opt in.

4. Overdraft is big business. Banks aren’t going to shrug off lost income. Many sources, including the New York Times, have speculated that we’ll see the end of free checking, since overdraft-happy customers have been subsidizing free checking for everyone else.

Dan Mahoney thinks this last objection is a crock. He’s a spokesperson for an BancVue, a marketing firm serving community banks and credit unions. “Accounts have built-in switches and levers that can be adjusted to counteract reductions in fee income,” says Mahoney. This is banker-speak for “the bank can just raise loan rates or lower deposit interest rates rather than charge fees on your checking account.”

Full disclosure: Mahoney does have a dog in the free-checking game: his company helps community banks and credit unions offer so-called “rewards checking” accounts, which offer very high yields (often north of 4%) to customers who use their debit cards a certain minimum amount of times a month (typically 10 or 12).

Now, back to that dark and stormy night.

If your debit transaction is declined, you don’t have to bum a ride from an escaping convict. Do you carry a credit card? Great. Credit card debt isn’t cheap, but it’s often a lot cheaper than overdraft fees.

Second, there’s a difference (work with me here) between “overdraft coverage” and “overdraft protection.”

* Overdraft coverage is what we’ve been talking about so far and what the new rules affect: the bank agrees to cover your payment in exchange for a fee. It’s opaque and expensive: the bank reserves the right not to cover you; they charge a large fee; and if you don’t put your account back into the black within a few days, they charge you again. It’s similar to a payday loan.

* Overdraft protection is when you link your checking account to a savings account or preapproved line of credit. If you link your checking to savings and then overdraw your checking, the bank will charge you a small fee ($5 or $10) and transfer money from your savings to cover the payment. Better yet, you can only be charged the fee once per day. If you qualify, linking your checking account to a line of credit is even better: this product, popular at community banks and credit unions, generally doesn’t carry a fee at all, just the interest on the credit line.

Do you have a balance in your PayPal account? If you’ve got enough signal to call the tow truck, you can probably also use PayPal from your phone.

Or just call Mom.

photo: lemonjenny

Last week, we announced a five-week long giveaway of Hot (broke) Messes, a financial how-to book for young adults written by Nancy Trejos, the personal finance columnist at the Washington Post. To enter the giveaway, we asked you — our readers — to share your own “getting out of debt” stories. Each week, five of you will win a copy of the book and we will publish some of the best stories on MintLife. Here is what some of you told us this week.

Deferred Student Loans to Focus on Credit Card Debt

Emily Holden of Brighton, Mass., wrote:

I’m pretty lucky: I don’t have too much debt for a 25-year old. School loans and my credit cards are the only things weighing on me. Currently my student loans are deferred, so I am using all my extra income to bring down those credit cards!

Recently, I joined Mint.com to help keep my budget in check. I am trying to use cash only, except for a few purchases here and there (like my gym membership).

I have sworn off buying clothes for the remainder of the month, but when I do, I try to stick to inexpensive, thrift-store clothes.

I never let my checking account get below $1,000 and I check my balances every day. I am planning my meals and outings before I go out, with the idea that I can’t spend more money than I have in my pocket. Soon, the credit cards won’t leave the house. Once I have the cards paid off, I can start paying my loans down. I also have a savings account that has around $10,000 in it, and I try not to touch that, except for my rent.

The key is: always know where your money is going.

Created a “Debt Management” Budget to Keep Spending In Check

Pamela A., Atlanta, GA:

When I graduated from college just a year and a half ago, I thought I was made–financially that is! With a degree in engineering, I had many offers that set me at a higher-than-average salary than most recent grads.

I settled in my new apartment in a city where I didn’t know anyone. I began splurging on numerous nights out in an effort to build my social network. I rationalized many wants into needs: new clothes, shoes, and makeup that I needed for work. I was spinning out of control, and decided enough was enough.

I used Mint.com to make a new, working budget for myself. The most significant changes I made were to budget for Debt Management. I made a budget category for paying my monthly finance charges. I also made a line item for money that serves no other purpose than to pay off the debt I have. These are both crucial items to set aside money for, but I had somehow missed putting them into my budget in the past.

I called my credit card company to ask if they could reduce my APR. It turns out, they had defaulted me to the highest rate because my account went over the credit limit when my credit card was stolen. My APR decreased by 10 percentage points!

The last step I will take to get debt-free will be to stick with my limited budget. The money I have been putting toward finance charges and debt repayment will go to an emergency savings fund or the Roth IRA I started this year.

At first it was scary to admit I had a problem, but now that I have it out in the air and a plan of action, I feel so much better.

Debt-Free for 1.5 Years – But Still a Ways to Go

Cathi C., Chattanooga, TN

I graduated college with only one small student loan, packed up the car and headed to the big city. Even though I was making the big bucks now (ok, not really, but compared to the salary of a part-time college student, I was rolling in the dough), I tried to stay conservative with my purchases. A few years later, the company I worked for closed and I had the grand idea of working for myself.

I’d like to think I’ve been fairly successful (I’m still doing it nine years later), but slowly the debt accumulated. In hindsight, perhaps I should have taken out a small business loan… but I didn’t, so after four to five years, I had amassed upwards of $15,000 on my cards. I tried bouncing things around with 0% APR cards with little success. I was scared. Embarrassed. Then collectors started calling. Yikes!

I got reconnected with a friend that was knowledgeable in the ways of finance and debt reduction. I can’t remember what exactly he said, or the precise steps I took. But whatever it was, it worked. I know I stopped using credit cards and went on a cash existence for everything. I trimmed out luxuries like vacations and eating out. Little by little, the numbers became smaller. It took some time and a lot of diligence, but about two years later, all my credit cards were zeroed out. Another year later, both my car and student loans were paid off as well. 

I have been living a debt-free life for a year and a half now and LOVING life! I am careful about my spending and have somehow managed to actually start a savings account as well as a retirement account. I still have a ways to go though – somehow I’ve gotten thru this without having a solid budget in place or a rainy day plan. I’ve never spoken with a financial advisor and haven’t figured out how to invest my money properly for the future. But, I am thankful I am now in the position to do these things (instead of hide under a rock from collectors!)

Do you have a get-out-of-debt story that you’d like to share?  Email us at bookgiveaway@mint.com, and you could win a free copy of Hot (broke) Messes by Nancy Trejos!

Attention, readers: Over the next weeks, we’ll be giving away 25 copies of Hot (broke) Messes, the new personal-finance book by Nancy Trejos. The details are below.

As the personal final columnist at the Washington Post, it was Nancy Trejos’ job to help people manage their money wisely and plan for a stable financial future. Yet, Ms. Trejos’ own finances were a mess. She owed thousands of dollars on her credit cards, had lost most of her down payment on a recently-sold condo (purchased at the height of the real estate boom with an ex-fiance) and drove a 2001 Volkswagen Beetle that was worth about $6,000 less than she owed the bank. Yet, she just couldn’t stop treating herself to pricey dinners, splurging on exotic trips and buying  hardly-needed little black dresses and cosmetics. (One of her decadent purchases: a 6.7 oz bottle of Bulgari shampoo, at nearly $50 with tax.)

In the summer of 2008, Trejos was working on an article about shopaholics when she realized that she needed help more than many of her readers and set out on a journey to be debt free. She chronicles her fall into debt — and the difficult road back — in her book Hot (broke) Messes: How to Have Your Latte and Drink It Too, in stores May 20, 2010.

The book resonates with many young consumers today and, interspersed with solid and actionable advice, is as useful as it is easy to read. And we want you to have it. Over the next five weeks, MintLife will give out 25 copies of Hot (broke) Messes — but you’ll have to do a little work for your copy. To enter the giveaway, tell us in 300 words or less, how you got out of debt and are managing to stay debt-free — or how you plan to do it. (Email us at bookgiveaway@mint.com.) Every week, we will select five winners and feature some of the best stories on the blog.

In the meantime, we recently got a chance to ask Trejos a few questions about her own debt and over-consumption story. Here’s what she told us.

MintLife: In your book, Hot (Broke) Messes, you chronicle your struggle with debt. Rather, debts: you had credit-card debt, student loans, an auto loan and, at one point, a mortgage. Of all these, which ones kept you up at night?

My credit card debt worried me the most. You can argue that it is worth getting student loans because you are investing in a college degree. And you can argue that a mortgage is worth it because you own a piece of property that has the potential to rise in value. But you can’t argue that there is anything good about credit card debt. 

I had used my cards frivolously. Here I was, in my 30s, still paying for a little black dress I had bought in my 20s that I probably couldn’t even fit into anymore. It wasn’t worth it. And after the economy took a turn for the worse, credit card companies started jacking up rates and charging inexplicable fees. It was scary to be beholden to companies that did not have my interest in mind at all.

My car loan was the second worst debt I had. Cars depreciate the second you drive them off the lot. Yes, for some people, a car is a necessity. It was not for me because I no longer needed my car for work. And I couldn’t sell it for what I owed the bank. I was stuck with a loan for a car I couldn’t really justify. I should have driven my old car, which had been paid off, until its wheels fell off.

MintLife: What is it, do you think, that got you in trouble with your finances?

Credit cards were so easy to get when I was in college, and I got used to using them and just telling myself that I would pay them off later. Combine that with the fact that for much of my 20s, I was an impulsive shopper and traveler, and you get a toxic stew. I also got so caught up in wanting to keep up with my peers, many of whom had higher-paying jobs or family money or just better budgeting skills, that I ended up going to fancy restaurants or taking expensive trips or buying nice shoes just so I would fit in. I’ve since learned that it’s okay to tell people that you can’t go to that restaurant with $35 entrees because it’s simply not in your budget. Thankfully, my friends love me even if I can’t afford such luxuries.

MintLife: Do you think that instant-gratification attitude and living an unaffordable lifestyle on credit is common among Gen Y-ers?

Yes, I think many of us grew up in a time of prosperity. For much of our young lives, the stock market was at a high, the real estate market was soaring, the economy was healthy. Accumulating possessions was the in thing to do. It was all about what you owned, where you dined, where you vacationed. The one possibly good thing this recession has done is to bring everyone back to earth. We all know now how easy it can be to lose our material worth. I think people are much wiser with their money now. Being good at budgeting is now the in thing.

 MintLife: Obviously, getting your finances in order is no easy thing. Are you debt-free now? What helped you the most? 

I am still a work in progress. I am still paying off my student loans, but I really don’t regret taking out those loans because I got a Georgetown University degree that has helped me get to where I am now as a writer. My car is close to being paid off. And I have stopped using credit cards for anything but work. I travel a lot for my job, so I have to use a credit card, but I get reimbursed for my expenses. I no longer use my credit cards to buy a dress or a fancy meal. If I don’t have the money for it in my bank account, I won’t buy it.

My planner, Christine Parker, was an immense help to me. She taught me how to budget, and she did so without making me give up every fun thing in my life. Thanks to her, I learned how to make trade-offs. I would remind myself that if I bought that pair of shoes, it would mean I would have less money for that trip I wanted to take. And taking a trip was more important to me than having another pair of shoes in my closet. I learned how to prioritize.  

MintLife: If you could leave young consumers – your book’s target demographic — with one piece of advice on money management, what would it be?

Think before you buy. If you’re at a store or online considering a purchase, just ask yourself: Do I really need this? I’m not saying you should never shop or take a trip. I don’t believe that at all. But you have to budget. You can budget for those luxuries. But if you’ve got loads of debt, your money has to go to paying that off before it goes to the extras.

MintLife: Do you still splurge on Bulgari shampoo?

I still have my hotel samples left! I was able to score many samples from my stays at the Ritz Carlton. Plus, all my friends know about my Bulgari obssession, so when they stay at the Ritz or fly on an airline that gives out samples (yes, I have one friend who is lucky enough to be able to fly on that airline!), they make sure to bring me back some. And they know what to get me for my birthday! 

What’s your get-out-of-debt story — or your plan to do so? Tell us in 300 words or less (send an email to bookgiveaway@mint.com), and you could win a copy of Nancy Trejos’ book!

Debt management isn’t rocket science. In fact, by following a few simple steps, you can keep yourself from getting into serious debt and maintain a high credit score.

 1. Never miss a payment. The number one factor in determining your credit score is your record of timely payments. Just one missed payment could drop your credit score by as much as 100 points, which means you could get a higher rate on everything from a mortgage to a car loan to a student loan. Essentially one late payment could cost you tens of thousands of dollars in interest over the life of a home loan. So pay on time!

2. Automate. To stay on top of your bills, sign up for automatic billing and payment. By doing this, you’ll not only protect your credit score, but you’ll avoid late fees (which can reach $40 for a single overdue payment). Another reason to automate: if you pay late, banks can raise the interest rates on your existing balances, which typically double (or even triple) the interest you pay.  

3. Follow the interest rates. Ideally, you should pay off all your cards every month. If you can’t, your best plan is to attack your balances from highest interest rate to lowest. If you have savings, use that to pay off high-rate credit card debt. It sounds counterintuitive, but here’s an example: Say you have $1,000 in savings and a credit card balance of 1,000 with an interest rate of 16%. If you keep the money in the bank for a year, you’d be lucky to make $10. Over the course of the year, you’d pay $160 to your credit card, taking a net loss of $150 for the year. With me so far? But if you take that money out of savings and pay off your credit card, you’ll earn no interest but you will also pay no interest. If you look at it that way, you’re actually saving yourself $150.

4. Stretch out the terms of your student loans. Generally student loans have low interest rates. If you need to free up cash, ask your lender to stretch out the terms of your loan from say, ten years to 20 years. Another idea is to look into a new program called Income Based Repayment. This allows you to repay your federal student loans based on what you make rather than what you owe. For most people, it will reduce monthly payments compared to the standard plan. Another bonus: any remaining debt will be forgiven after 25 years. For more information, go to http://www.ibrinfo.org/.

5. Pay more than the minimum. Paying just a few dollars extra every month can make a huge difference. Say you owe $1,000 on a credit card (with a 16% interest rate). If, instead of making the minimum payments, you paid just $20 more each month, you’d save $260 in interest and you’d be out of debt four years faster. The point? Pay as much as you can.

6. Negotiate your rates. Try to get a lower rate on your credit cards, or get a lower-rate card by calling your card company and asking for the retention office.

7. Get help. If you’re having real trouble repaying your debts, you may need help. Try negotiating with your lenders, or, if you feel comfortable, consider borrowing from friends or family. (Get it all in writing with a contract from Nolo.com.)  If you need to talk to a financial expert, two places to start your search are the Association of Independent Consumer Credit Counseling Agencies (AICCCA) and the National Foundation for Credit Counseling (NFCC). Avoid for-profit counseling companies or anyone who tries to put you into a debt settlement or debt management program right away. (These programs can be expensive or even outright scams.)

For more tips from Beth Kobliner, visit http://www.bethkobliner.com/ or follow her on Twitter.