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March 2013

This week should have been a vacation.

It has been, for the most part, but not entirely. While I’ve traveled occasionally over the past few years, and even chosen destinations meant for relaxation and time alone with loved ones, I haven’t had one of those fabled true vacations. My cell phone was still near by. I still took business-related calls. I still wrote for Consumerism Commentary every day, participated in discussions, and replied to emails, every day while not home.

Perhaps working for myself is a benefit and a curse — I make my own schedule but I feel compelled to take care of my responsibilities, at least some of them, even when I should b allowing myself to forget about work.

I had planned to change that this week. After visiting my family in southern California, a week-long detour to San Francisco with my girlfriend should be something to keep me away from working. We’re having a great time, but without enough planning in advance and with other business-related responsibilities requiring my attention, it hasn’t been the complete escape from reality I had in mind.

While my own vacation may not be a true escape, my financial attentiveness has seemed to have been more successful at leaving the world behind. In the past two days I discovered I made some annoying errors with the management of my accounts.

1. I didn’t verify Wells Fargo closed my old business accounts.

A year after I sold most of my business, I finished up accounting and began the process of closing my business bank accounts. At least, I thought I did. I visited my local Wells Fargo branch in January to close my old accounts and open new accounts for my new business. The banking representative at the branch transferred the residual balances out of the accounts, and I thought I had taken care of everything.

When I checked my account online this month, I noticed the old, supposedly-closed accounts were still listed, and I had been charged a monthly maintenance fee. By transferring my balances out, I was left with an account with a zero balance, below the minimum balance required to avoid monthly fees. Because the accounts were still in existence, for whatever reason, I was charged this small fee, and my account balance had dipped below zero.

I called the bank’s customer service department for business accounts late one night recently. They were able to see that the accounts should have been closed in January. The bank kindly reversed the monthly fee that should never had been charged, and we both verified that the accounts were now closed.

At the same time, I forfeited the six cents of interest that had accumulated in my business savings account during the month of January. Had I wanted to transfer that remaining balance to my personal account, it would have taken another day and another phone call. I quickly decided it wasn’t worth the effort.

I wasn’t able to avoid all fees. After I took care of the above problem, I realized that I had been charged a small monthly maintenance fee in my new business account. When I created the new accounts for the business, I discussed with the representative in the branch the requirements for avoiding monthly service charges. The account I chose requires either a $150 recurring automatic transfer or a minimum average daily balance of $500. This is where my memory becomes hazy: I thought the representative set up the recurring transfer for me.

My mistake was mot verifying this after the fact. When I noticed my mistake, I transferred cash into the business account to cover the minimum average daily balance requirement, but not without incurring one monthly service charge.

2. I didn’t have a large enough balance in my Capital One 360 checking account to cover my credit card payment!

My finances used to be simple: my income was deposited from various sources into a business checking account, an amount was transferred to a personal account to represent my paycheck, and this amount would cover my expenses each month, most of which are paid on a credit card that earns miles.

My financial situation has changed, and I use different accounts now. That means I have to remember to fund my personal checking account with the right amount each month. And I’ve allowed myself to keep my finances automated for so long that I might forget these tasks. Chase, as one would expect as the credit issuer, makes things difficult.

  • My automatic credit card payment bounced, which I knew before Chase “knew.” It took a day or two for Chase to recognize that the automated payment would not go through.
  • In that interim period, I wanted to make the full payment from a different account — a checking account held at Chase, which had already been linked to my credit card for use as a payment method. Chase would not permit me to make the full payment because if the first, automated payment had gone through, the remaining balance on my credit card would only include charges since the last bill, and Chase doesn’t let credit card users “overpay” their bills. In my case, it wouldn’t be an overpayment because I knew the automated payment would not go through, but Chase didn’t “know” that yet.
  • Once Chase recognized the response from Capital One 360 rejecting the automated payment request, I was able to schedule a new payment. I had already scheduled a smaller payment to cover the charges since the last bill, but I wanted to make sure my card balance was paid in full as soon as possible. Chase, for an unknown reason, does not allow two payments within three days of each other. I say the reason is unknown, but I know there is a purpose — to ensure that situations like these don’t happen without Chase earning some money in interest or late fees.

While these recent events haven’t cost me much money in the long run, it has been a wake-up call. In my attempts to simplify my finances, and due to the reduction of my need to look at my accounts on a daily basis, I’ve let certain things slip. I’ve taken too much of a vacation from managing my finances in a responsible manner.

Years ago I warned about the dangers of automating your finances. I set up a good system, and it worked for me well until my circumstances changed and I began throwing wrenches into the works without making sure everything was still working properly, like a well-oiled machine. The damage wasn’t excessive, but it was annoying, so now it’s time to re-evaluate my financial system, make changes and enhancements to make sure nothing falls through the cracks, and begin, once again, monitoring my money a little more closely.

Mistakes happen to everyone. It could be worse; a small-time writer like myself who pays a few extra fees is nothing compared to a financial planner, popular author, and columnist for The New York Times who lost a his house. At the risk of seeping into alliterative reductionism, the best approach to take when facing unfavorable outcomes is to accept, analyze, and adjust.

With these financial fires extinguished, I can get back to enjoying my vacation in San Francisco despite the occasional turn to a focus on business while everyone else is asleep.


A few years ago, new regulations mandated that 401(k) retirement plan administrators change quarterly statements to include more information about expenses about each fund in which the employee is invested. This was a good move.

I have mixed feelings about 401(k) plans. Today’s world of employment is different than that from a generation ago. For those in the middle class, having a career meant, for many, sticking with the same company for a lifetime. Even after retirement, that company would take care of its employees with pensions and health benefits. With a growing middle class and some difficult periods of economic uncertainty, companies were unable to meet their pension obligations.

Wall Street stepped in. The financial industry pushed the idea of personal responsibility for retirement — it’s difficult to argue against that concept. While the industry introduced products to help individuals invest for their retirement, the government enacted legislation that created tax incentives for those who were able to put aside some of their income for later.

Today, many companies automatically enroll new employees in 401(k) plans. This can be described as an advantage, encouraging younger employees to create a more secure retirement without much effort. The first steps — deciding how much to set aside for retirement and choosing the investments — are often the hardest, and they stop many people from enrolling in retirement savings plans as early as they should. Sometimes the stopping point is just the idea that someone — particularly young employees — aren’t earning enough to set aside anything for retirement. Automatic enrollment solves these problems and moves employees forward with their retirement savings quicker than any other options.

The same automatic enrollment approach to 401(k) is a great benefit to investment companies — particularly, the managers of mutual funds, the companies they work for, and the companies that administer plans (third parties standing between investment companies and employers offering the 401(k) plans). The default enrollment often includes an investment allocation that includes funds that are more expensive than necessary.

Index mutual funds outperform actively managed mutual funds over long periods of time. Managers who attempt to beat the market just can’t. Index mutual funds, for the most part, are also much less expensive to manage than actively managed funds. Index funds change their underlying investments less often than other funds, and those other funds quickly rack up transaction fees. Add that to compensation for the mutual fund managers — which they receive whether their funds perform well or not — and the total cost of these funds doesn’t justify their performance or lack thereof.

CNN Money recently referred to a recent study that showed that some employers cost their employees $100,000 more than others for their average employee’s retirement.

For example, let’s say Employee A works for FedEx, while Employee B works for Best Buy. The employees are the same age (25), have the same salary ($55,000), same annual wage growth (3%) and put the same chunk of their salary in their employer’s 401(k) plan each year (10%).

After 40 years, Employee A would have a final account balance of nearly $830,000… Employee B, meanwhile, would start retirement at age 65 with a nest egg of roughly $743,000 — almost $100,000 less.

You can beat these averages by getting more involved in your retirement allocation. Choose the lowest cost index fund available. And if there isn’t one, raise the issue with your human resources department.

A few years into my first major job out of college, working for a non-profit organization, the company finally began offering enrollment in a 403(b) plan — the non-profit version of the 401(k). You would expect this type of fund to have better low-cost investment options than the average 401(k), but that wasn’t the case. A small organization like the one I worked for didn’t have many options for working with those third-party retirement plan administrators, and didn’t have the standing to negotiate lower fees or better deals for employees.

Although I wasn’t as experienced with personal finance as I am now, I still saw the plan as a raw deal for the employees.

Sometimes even the best investment option in a retirement plan isn’t very good. But if you’re still living with whatever the company decided you should be invested in, or if you followed your company’s automatic guidance based on your risk profile, as I did when working in the financial industry, chances are you’ll either be retiring with less money in your nest egg or you’ll be waiting longer to retire.

The other option includes evaluating your investment options, choosing low-cost index mutual funds, and doing more to take control of your retirement investments than just allowing your employer to automatically enroll you in something that benefits the financial industry more than it benefits yourself.

As I’ve seen in my own 401(k) plans, it can be hard to determine the true cost of your investments. My former company offered its employees a small-cap index fund, which seemed to be a good choice for balancing retirement funds between a variety of company sizes. Of course, what I should have done would be sticking to the low cost index fund that matches the S&P 500 or a similar index without concerning myself with company sizes, but I was strongly influenced by the company’s own model portfolios used in its risk models.

I liked the idea of balancing my investments with a small-cap fund. What I didn’t realize is that the account was actually an annuity — or a mutual fund that had some annuity features. The expense ratio, the typical measurement of a fund’s management expenses, was listed as 0%, and I thought that was a great deal.

I should have known an expense ratio of 0% was too good to be true; there were expenses built into this fund that were not disclosed in the expense ratio.

Over time, I’ve moved all of my retirement funds into low-cost index mutual funds. While the investment choice is no guarantee that I’ll have the biggest nest egg possible when I reach the age at which I’ll begin withdrawing these funds, it puts me in a better position to have a higher investment balance than I would had I remained in high-cost investments.

Keep your retirement expenses low:

  • Check your quarterly 401(k) statements.
  • Read your investment prospectuses occasionally, and understand how the fees are communicated.
  • Don’t blindly accept the default investment allocation.
  • Select low-cost index mutual funds over other options.


When you take on a credit obligation, or liability, you normally sign an agreement or promissory note requiring pay back of the debt. What you’ve just done is incurred what’s referred to as “contract debt.” If you default on a contract debt, such as a credit card, the creditor can and likely will vigorously pursue you for payment.

In many cases the original creditor will eventually sell your debt to a third party debt buyer. The debt buyer now becomes your creditor and you no longer owe the money to the original creditor. At this point the new creditor can report the account to your credit reports and enlist the assistance of a collection agency to persuade you to make good on your promise to pay the debt.

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Collection agencies normally collect debts using a variety of tactics. The agency will definitely report the debt to your credit reports. The agency will call you and write to you demanding that you make a payment. And, in the worst-case scenario for the debtor, the collection agency can sue you to collect the debt.

If you’ve been contacted by a collection agency about an old unpaid debt, it’s important that you do your due diligence and verify that the debt is valid and whether or not the collector still has the right to collect – especially if the debt has passed the statute of limitations.

The statute of limitations (SOL) to collect a debt is the length of time a creditor or collector has to take legal action and file a lawsuit against you in order to collect. If the statute of limitations has expired, the creditor or collector has no legal recourse and no longer has the ability to sue you for payment. The debt essentially becomes what’s called “time-barred,” which means the court no longer has the right to force you to pay up.

The SOL on time-barred debt varies depending on individual state laws, the type of debt and the type of contract initially agreed upon for the debt. For example, if you default on a contractual debt in the state of California, the statute of limitations is four years — meaning you can’t be sued for collection after four years has passed.

Statute of limitations by state

It’s important note that the state you resided in when you incurred the debt could take precedence over your current residence if you’ve moved to a different state. In most cases, the statute of limitations in the state where the contract was initially executed will rule unless the contract specifically states otherwise.

For example, if you signed a written contract with a creditor in California and later moved to Kentucky, the statute of limitations would be based on California law unless otherwise stated. In this example, California law only allows you to be sued for four years, where Kentucky’s is quite bit longer at 15 years. Here’s a breakdown by state for the statute of limitations on written contract debts:

Statute of Limitations on Written Contract Debts

State Number of Years
CA, PA, TX 4
FL, ID, NE, OK, RI, VA 5
AL, AK, AZ, AR, CO, CT, GA, HI, KS, ME, MA, MI, MN, NV, NJ, NM, NY, ND, OR, SD, TN, UT, VT, WA, WI> 6
MT 8
IL, IN, IA, LA, MO, WV, WY 10
KY, OH 15

SOL: Credit reporting vs. debt collection

Don’t assume that the just because the statute of limitations to sue for a collection has passed that the account won’t be reported in your credit reports. The statute of limitations for collecting an unpaid debt and how long a creditor can legally report that debt in your credit report are very different. The statute of limitations for reporting a collection is 7 years, regardless of the state you live in. As evidenced in the preceding list the statute of limitations for collecting a debt can vary widely — from as little as 3 years to as long as 15 years for states like Kentucky and Ohio.

Unpaid collections: To pay or not to pay

One of the most common questions I get about collections is whether or not it makes sense to pay the debt, especially in regards to time-barred debts that have passed the statute of limitations.

When it comes to unpaid debts, I’d argue that you should pay the debt, especially if the debt is legitimately yours and you owe it. Keep in mind that collections will remain in your credit reports for 7 years, regardless of whether or not the statute of limitations has expired and the creditor or collector is legally able to sue you.

It’s also important to keep in mind that some lenders may require that you pay or settle old unpaid collections before they’ll agree to do business with you. This is especially common in the mortgage industry and something to keep in mind if you’re planning to apply for a mortgage to purchase a home.

Do collectors really sue if I don’t pay?

The collection industry is a big business and the odds of being sued for an unpaid debt is pretty high, so the answer is “yes.”

Obviously, the more you owe, the higher the risk of being sued. If you have a collection and are able to pay or settle the debt for less, it’s in your best interest to do so. It’s no secret that collection agencies are aggressive, and if the number of FDCPA and FCRA lawsuits are any indication, collectors are suing now more than ever to get their money.

Photo: Brad_Chaffee


Naked With Cash is the year-long series on Consumerism Commentary where seven readers’ households share their financial progress on a monthly basis. I’ve partnered with financial planners who will offer some guidance along the way. Read this introduction to learn more about the series.

Calvin is in his early 40s, earning a salary of $120,000 plus bonus as an IT project manager in New Jersey. He has recently finalized a divorce and has a teenage child. Read his bio here. Calvin is on Team Sara, with Certified Financial Planner Sara Stanich.

The net worth report below and following commentary refer to the last full month, February 2013. Last month’s report analyzed Calvin’s progress during the month of January. Continue reading this article to see the net worth report and Calvin’s own analysis, which are followed by Sara’s feedback and advice.

Sara Stanich, CFP appears courtesy of Stanich Group and Cultivating Wealth.

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