Are people wasting their money when they pay a company to repair their credit?  This question came up today when I discovered a coworker had previously worked at a credit repair company.

Credit Repair Services Provided
Based on what my co-worker learned in his time with the credit restoration company they did not provide a service that an individual with credit troubles could not do themselves. Here is the process they went through on behalf of a customer.

The first step was for a person with bad credit to request a copy of their credit report from the three major credit bureaus, TransUnion, Experian, and Equifax.  The company then opened a dispute with the credit bureaus on several negative items from the report.  The credit bureaus then had 30 days to contact the creditors and investigate the disputed items. Typically one or two of the negative items would be dropped from the credit report after this process.  The credit restoration company would wait a period of time and then try again.

Waste of Money?
The fees for this service varied from $300 - $600 depending on the branch that did the work.  From what I understand, the customers are basically just paying the credit restoration companies to do the legwork, there doesn’t seem to be a lot of added value other than having someone else go through the motions.  It seems likely that if someone has credit problems, they’re probably not flush with money and they’d be better off doing the work themselves and using the fee they paid the credit restoration company to pay down their debts. 

Am I off base?  Do credit repair companies add more value than I just described for the money they charge?

If a wealthy retired corporate executive gave you retirement advice would be thankful or feel like they were rubbing your nose it in?

Executive Privilege
Our most recent company newsletter featured several former corporate executives that have retired from the business to pursue their life’s ambitions.  I had mixed feelings as I read the article in my worker-drone cubicle.  They all gave good advice on preparing for retirement but they also had much larger salaries than most people in the company.  I understand that the corporate benefits office was trying to promote 401k investing and good money management with the article but it didn’t sit quite right reading about these executives living their dreams while we slave away in our cubes.

Money Management
These executives worked long and hard to get to the top but they didn’t achieve early retirement simply by earning a lot of money.  They were smart and managed their money well.  The article started off by explaining they had all set their retirement goals when they were young and managed their lifestyles and finances around the goals.  It also mentioned that the booming market of the 1990’s had a part in helping them retire early.

Retirement Advice
Here are some of the actions and philosophies the executives follwed that allowed them to retire early:

– maximized participation in the company 401k, invested in non-company plans like a Roth IRA, and worked there long enough to become fully vested in the profit sharing plan

– lived a conservative life style, tried to manage their money to stay out of debt and that left more money to invest for retirement

– "When I got extra money it went into investments; I didn’t drive big fancy cars and I didn’t buy big fancy houses.  You have to put aside to take care of yourself, and if a company hands you money, you have to manage what they hand you"

– Started planning for retirement as soon as they joined the workforce, first thing they did was start a savings account

– Remained debt-free

– "It’s all about choices: if you choose to spend, you choose to work until you pass away; and if you choose to save, you leave when you want"

Article Reactions
I’m glad that our company is trying to promote planning and saving for retirement, I just wish they had used some role models that more of us workers could relate to.  I’m afraid that since only executives were interviewed people may miss some of the message on money management and focus on the fact they need to become corporate big shots to make enough money to retire.  What do you think?  Did the executives inspire our workforce to save?  Will people be able to see beyond the big salaries to the wise retirement preparaton advice?

Having someone steal your identity is bad enough, it really sucks when you loan it out to someone else and they do something stupid with it. A username and password are often all that’s needed to assume someone’s identity on the Internet, lending yours out can turn out to be an expensive or embarrassing mistake.

Rouge eBay Shopper
Have you ever told a friend or family member the username and password to an account of yours so they could use it “just this once”?  Just yesterday, I had a customer’s relative spend almost $150 in my eBay store then decide minutes later it wasn’t what they wanted.  That left the eBay user to try and reclaim her $150 without getting negative feedback. Here is her email:

“I have been a positive ebayer for over 2 years now.  I am very conscientious about keeping 100% positive feedback. I am sorry about the purchase. My sister in law asked to use my account because she couldn’t find the backpack anywhere else and needed them for her soccer team.  I explained to her the process and to read everything carefully.  I am a very good ebayer and read everything completely so none of this happens.  I guess it teaches me a lesson.  I am really sorry.”

Of course I’m refunding her money and canceling the sale, I’m not going to ship her something she can’t use.  But what if I was a jerk and refused to work with her?  Or what if I returned her money but left her negative feedback? She’d either be out $150 or have ruined a perfect feedback rating because she loaned out her eBay and Pay Pal identity.

Email Slander
It can take a long time to build trust with others and only a few minutes to ruin that trust; I’ll give you an example. I went to school with a guy named Niraj that let a friend use his email account to send an urgent email.  Later that day I was shocked to find a very rude email from Niraj that had been sent to the whole computer science department. 

It turns out that his friend had sent the email from Niraj’s account in jest but it didn’t much matter.  The damage had been done; Niraj’s credibility had been tainted.  He was able to work things out with the administration but the email could have ended up losing Niraj his job with the school. 

Guard Your Offline Information
Loaning out your identity isn’t just a mistake online; it can cost you a lot of money in the non-virtual world as well.  Another episode I witnessed back in school had to do with telephone access codes in dorm rooms.  One guy loaned out his authentication code for the phone service to several people and one of them used it to access adult phone content and ran up a bill for hundreds of dollars.  Of course he didn’t know who it was and couldn’t prove he didn’t make the calls so he was stuck with the bill.

Careful Who You Trust

It’s hard enough protecting your information and identity from people you don’t know. If you don’t want to end up out a big chunk of change, majorly embarrassed, or in trouble its safest not to loan out your identity to friends or family, as harmless as it may seem at the time.

We have some junk in our portfolio, junk bonds that is.  About 5% of our portfolio is invested in junk bonds and today I’m taking a closer look at them due to their poor performance this year.

What Makes Them Junky?
When a company wants to sell bonds to raise money but their debt isn’t deemed “investment-grade” by credit rating companies the bond is rated as a lower quality. Companies like S&P and Moody’s look at things such as cash flows and debt on the balance sheet when rating a company’s potential ability to pay its debts. Junk bond is the term used to refer to bonds rated BBB by S&P or Baa by Moody’s.

Who Are These Junky Companies?
The companies that are looking to raise capital with less than stellar debt ratings are often either new enterprises in the beginning stages of development or established companies that have struggled financially.  The newer companies don’t have much of a financial history to base an analysis on so they’re deemed less likely to be able to make interest and principal payments until proven otherwise.

In addition, some established companies that used to have an investment-grade rating have been downgraded to junk bond status.  Since the risk of lending to companies with worse credit is higher, they have to pay higher interest rates to entice investors to loan them money, hence the name high yield corporate bonds.

Why Invest in Junk?
One role that junk bonds play in a portfolio is that their returns and risk profile tend to fall between those of stocks and investment grade bonds.  According to Fidelity:

“high yield bonds tend to be less sensitive to interest-rate movements than investment-grade bonds, and are more sensitive to the factors that influence stock prices, such as a company’s business prospects, cash flow, and debt level, as well as industry fundamentals and the overall health of the economy….

At the same time, high yield bonds are fixed-income securities that derive the bulk of their return from coupon payments (income), which makes them less volatile than stocks and provides downside protection.”

Hard Times for Junk Bonds?
An article in the Chicago Tribune warns of tough going for junk bonds in the near future.  Slower profit growth and rising debt levels could lead to higher volatility. Scott Berry of Morningstar Inc., warns “keep reasonable expectations for the [high-yield] asset class. It’s not offering a lot of yield for the risk, and double-digit returns are going to be difficult to get.”

Junk bonds have definitely taken a hit recently.  Our investment in Vanguard High-Yield Corporate fund (VWEHX) dropped in value for all of June and July to prices it hadn’t reached since December of 2002. Although the fund has a 5 year annualized return of 8.16%, the year to date return has been not so good, -1.58%.  Things have improved some with an upward trend over the last month but it could be rough going for a while for junk bonds.

Have you ever heard a co-worker complain about their job then follow it up with something about quitting once they win the lottery?  I feel bad for these people and would love to crawl into their head to read their thoughts. Do they really think they’ll win the lottery? If their life plan is based on winning the lottery someday, odds are they’re in for disappointment.

Playing the Odds
If you are going to play the odds for income outside of your job, you might as well try starting some venture of your own.  The historical statistics aren’t so good for the success of a new small business.  However, even though many fail in the first few years, your odds of making a small-business work are definitely higher than winning the lottery.

Building Value
Of course offering your own product or service is a lot more work than buying a lottery ticket but statistically it is a much smarter move. A lottery ticket doesn’t hold any long-term value unless it is the winning number. The experience and connections you build when starting your own venture will be of value for years to come, even if the first business doesn’t work out.

Mental Rewards
Running your own enterprise, regardless of size, can be more psychologically rewarding than trying to guess the winning numbers.  When you play the lottery it’s pretty much up to chance, you don’t have control over whether your number is picked.  It can be frustrating when you don’t win time, after time, after time. All you can do to try again is buy another long-shot ticket.

On the other hand, building your own business is something you do have control over.  If something doesn’t work you have the power to make some changes and try something different.  Knowing that you’re in charge of the end result is more empowering than hopelessly wishing the numbers will finally fall your way.

Get Rich Slowly
The obvious draw to the lottery is the get rich quick appeal.  It’s easy to play and you can win a lot of money.  Not to say that I wouldn’t love to win the lottery but the odds are I won’t.  Rather than hold on to a slim hope of hitting it big so I can quit my job, I’d rather put my time & money into growing something that might actually let me quit my corporate job someday.  Not to say you should never play the lottery on a whim, just that you shouldn’t make winning the lottery be your life plan.

Our kitchen is being invaded by ants!  We’ve had a few ants here and there in summers past but over the last week they’ve shown up in full force.  Last weekend I bought some insect spray at Home Depot and sprayed around the outside of the house but it doesn’t seem like it’s done much good.

Rather than diminishing they seem to be spreading to more areas in the kitchen.  We’ve never had anyone come spray for bugs before but are going to look into it.  Any suggestions on how to handle the ants or some good companies to use?  Anyhow, while I’m fighting ants, you can enjoy some money articles from last week.

Start off by checking out the debate between Trent and JLP in the comments of this post on investing, then move on to the ones below.

-The (Lack Of) Relationship Between Intelligence And Wealth @ Money, Matter, & More

-Are You Ready To Be A Parent? Know The Cost Of Having Kids @ The Digerati Life

-Reader Question: Whole life insurance vs Term insurance? @ Generation X Finance

-Weather the Stormy Market with a (Re)Balanced Portfolio @ Suns Financial Diary

-Prosper Beats the S&P 500? @ Lazy Man & Money

-How to Make Money in the Stock Market @ Five Cent Nickel

-Leverage Your Contacts for Business Marketing Success @ Free Money Finance

-More On Why I Sold My Vanguard Target Retirement 2050 @ Blueprint for Financial Prosperity

-Money-making idea: Journaling while you’re learning a new skill @ Mighty Bargain Hunter

-10 Tips for Buying a Residential Rental Property, Part 1: Buy at the Right Price @ Consumerism Commentary

-8 Ideas for Saving Money on Books @ Plonkee Money

-Employer Disability Insurance @ The Financial Blogger

-Questions and Answers with Warren Buffett @ Get Rich Slowly

Thanks to The Simple Dollar for including the article Retailer’s Anger Reveals How You Can Make Money On eBay in last week’s Carnival of Personal Finance.

Why is it that car dealers think it’s necessary to yell at us in their radio ads? It seems like every car lot commercial I hear is the same.

“WE ARE LIQUIDATING OUR INVENTORY; EVERY CAR ON THE LOT MUST GO!! BAD CREDIT, NO CREDIT, NO PROBLEM! WE FINANCE EVERYONE!”

I have never gone to a car dealer because I heard them shouting at me on the radio. As a matter of fact I will try to avoid any business that screams about selling me a car.

Ridiculous Commercials
Is it just me or do these car commercials seem ridiculous? Is there any other type of business where they shout at potential customers in their advertising? Seriously, every commercial sounds exactly the same. What do they do, all hire the same guy with a booming voice to yell about liquidations and financing? And how many sales events can one dealership have in a year?  If you have “a spectacular sales event” every two weeks, are they really all spectacular or do they become just another excuse to shout about selling cars?

Junk Mail
If the annoying radio commercials weren’t enough to drive me away, the trick junk mail definitely is.  An official looking letter that read IRS NOTICE made my heart leap several months ago.  When I opened it up to discover that IRS stood for Inventory Reduction Sale at a local car dealer it certainly didn’t make me want to rush over and buy a car.

Different Song, Same Dance
How many times have I heard that car dealers are “slashing prices” to sell as many cars as they can “regardless of loss of profit”?  If that were true, wouldn’t their cars be selling for better deals?  If you follow up on those ads, you still have to go through the whole salesman’s song and dance of running back to the sales manager to get prices approved and calculation after calculation to see how they can reduce your monthly payments instead of the price of the car.

I’m not arguing that car dealers should sell cars without making a profit, just wishing they’d change their selling tactics.  Their current approach must work on some people otherwise they wouldn’t keep doing it but one thing is for sure, it doesn’t work on me.

Do you want to start your own eBay business with minimal risk and no debt? I’m sharing the steps I took to build my eBay business and giving away a free multi-part tutorial on how to get started. Sign up for the free tutorial with the adjoining form and get started today!

Is it wise to go into debt when you’re starting a business? Do you have to borrow a chunk of money or is there any other way get started? I had a reader email me in response to my post on using credit cards to buy eBay inventory.

“Many small businesses use credit cards to fund their initial expenses.  A lot of times when you’re just getting started you need some seed money and credit cards are a simple way of getting it.  Sure there’s the risk you’ll carry a balance for a while until you become profitable but isn’t assuming risk just part of doing business?”

Startup Money
The saying goes “it takes money to make money”.  The good news is you don’t necessarily need a lot of money to get started.  The very first thing that Guy Kawasaki tells us in the “Art of Bootstrapping” is to focus on cash flow.

“Focus on cash flow, not profitability. The theory is that profits are the key to survival. If you could pay the bills with theories, this would be fine. The reality is that you pay bills with cash, so focus on cash flow. If you know you are going to bootstrap, you should start a business with a small up-front capital requirement, short sales cycles, short payment terms, and recurring revenue. It means passing up the big sale that take twelve months to close, deliver, and collect. Cash is not only king, it’s queen and prince too for a bootstrapper.”

Bootrapping on eBay
eBay fits Guy’s requirements pretty well. You can start off only selling one or a few things so the up-front capital requirement is small.  Auctions can last 3-10 days so the sales cycle is short, unless you sell in an eBay store which may have longer inventory turns. You can set your own payment terms, if you only accept PayPal then most people pay within a day or two of winning the item.  The recurring revenue of course depends on you finding new products to sell but the good news is products are everywhere.

Why Go Into Credit Card Debt?
The reader mentions that many small businesses use credit cards to get started. While this may be true, I would ask, why take on high interest debt when you don’t have to?  You can actually be profitable and have positive cash flow after your first sale on eBay, why go into debt that will just eat into your earnings? 

Of course, the way to keep initial capital requirements small for an eBay business is to start only selling a few things.  As you make money on the initial sales, you can re-invest the profits into additional inventory and grow the business without debt.  If someone is looking to start out with tons of inventory and sell hundreds of dollars of goods a week right off the bat, they may have to borrow money up front.

Alternative Funding
If you don’t want to go into credit card debt to start making money online you can always pursue other, less expensive funding sources such as taking out a second mortgage, dipping into personal savings, borrowing from friends or family, taking out a bank loan, or borrowing on Prosper.

eBay & Prosper
eBay is actually hosting a Prosper forum today for people interested in borrowing startup money on Prosper.com. Run by Prosper Marketing Director, Shira Levine, it will go over some of the basics of small business finances. Here is summary of the forum:

“We’ll cover the five basic questions every business should ask themselves before you finance, how to know where you stand financially, and the importance of cash reserves in your company. Then we’ll cover financing basics: debt vs. equity, credit scores and reports, and common pitfalls to avoid. The workshop will end with how to create an excellent loan listing on Prosper that will get your business funded.”

Credit Card Funding
Of course everyone’s situation is different and using a credit card as a funding source might work out for some people.  However, if you want to avoid high interest charges and are willing to start small and grow your sales over time then it’s possible to start making money on eBay without going into credit card debt.  Are there any other alternative funding strategies that I missed?

Is it a good idea to use credit cards to pay for inventory when starting an eBay Business?  I had a reader ask this question the other day and I think the answer is, it depends.  Personally, I use a cash back credit card to buy any inventory I sell on eBay but there are some specific rules I follow when using the card.

Only Spend What You Have
If you purchase something on your credit card and sell it before your card payment comes due, you’re leveraging your credit card. You sold something for a profit that never actually cost you any money since you had the cost covered before you received the bill. While this is a great tool to make money, you should be cautious about abusing it. I only spend money on inventory that I know I can cover. What happens if you buy a bunch of stuff on credit you don’t have the money for and can’t sell it before your credit card payment is due? That leads nicely into the next rule.

Pay It Off
If you aren’t going to pay off your card balance each pay period then you shouldn’t use it to buy inventory.  Don’t even think about taking your profits and re-investing it in new inventory until your card balance is paid.   The whole point of selling on eBay is to make money.  If you’re carrying a balance then you’ll be losing money with the high interest charges.

Be Disciplined
You have to use strict guidelines when buying items to resell on eBay to be sure you’ll make money.  I only buy something if I have a good feeling how much I can sell it for and what my costs of selling will be.  One tendency people have when using a credit card is to overspend or make foolish purchases because it doesn’t feel like you’re spending “real money”.  If using a credit card prevents you from being disciplined in your buying you shouldn’t use it.

Summary
If used correctly, credit cards are a good tool to use when buying inventory to sell on eBay. The benefits are it earns you cash back, offers a little leverage, and helps keep track of all your purchase records in one place. However, if you can’t follow the suggested rules, I’d recommend not using them.

As you watch your investment holdings quickly diminish over the course of a few days it is easy to panic.  You might give some thought to trying to cut your losses and sell but if you’re a long term investor this is likely not in your best interest.  In fact, when the market is down is the best time to buy.

… it always feels a lot better to buy when the market is going up. But you make more money buying when the market is going down
[The Long and the Short of Down-Market Investing]

… if you invest regularly and have some time before retirement, bear markets can be a beautiful thing.
[Down Markets Good for Many Investors]

Here is my question. How do we gauge when the market slide has finished?  The chart below is pretty obvious in hindsight but in the heat of the moment of the market decline you never really know where the bottom is. 

Dollar cost averaging is how I currently put money into my investments but am considering buying more when they’re on sale. So how do I know when to buy into a down market? 

The chart above shows the price of an S&P 500 Index, Vanguard 500 Index (VFINX), since the Fall of 2002, with 14 occasions where the market had a noticeable drop.  It’s not very scientific; I just eyeballed some low points.  Thanks to Google Finance I was able to look at the price before the drop and the price after the market decline. 

The table to the side shows the percentage change in the price of the index after each occasion. One rule I could use to decide when to buy into a down market is to only buy after the index has dropped by a certain percentage.

I would have bought at almost each one of these dips if I set my benchmark to any decline over 3% but would have only invested in 6 of them if I decided to wait for drops of 4% or more and only 2 of them if I required at least a 5% downturn.  I’m not sure which percentage I should settle on but I do know the latest drop in prices looks to be the second largest in 5 years.

Of course, another thing to consider is that the market has been on an overall upward trend over the last 5 years. I’ll have to also take a look at buying in the dips over a 10 or 20 year period to see what that turns up.

What are some other ways you use or know of to help determine when to buy in a down market?