How to Deal with Debt Collectors

Sometimes money can get tight, there’s no doubt about it. And while we all want to pay our bills on time, every now and then, bad things happen to good people. It can be as serious as losing a job, or as simple as forgetting a payment. Neglecting to make timely payments to creditors not only wrecks your credit rating, it puts your reputation at risk.

You may find yourself dealing with stern and persistent debt collectors, which only adds to the stress of a financial setback. But remember, in addition to your responsibilities, you have rights. Here’s how to deal with debt collectors, negotiate a settlement, and be treated with respect.

Know your credit collection rights

debt collectionsWhen you are being pursued by debt collectors, you might cringe each and every time the phone rings. While you don’t want to answer, it’s in your best interest to keep the lines of communication open between you and your creditor. The conversations are never easy but you are protected by the Fair Debt Collection Practices Act from rude and unscrupulous collection agents. The Federal Trade Commission enforces the FDCPA and can prosecute illegal collection procedures in the U.S., which include:

  • Phone calls prior to 8am or after 9pm, unless you agree. Debt collectors simply must refrain from calling you at inconvenient times or inappropriate places. And they can be prohibited from calling you at work, if you aren’t allowed to take calls on the job.
  • Debt collectors must discontinue contact with you if they are notified in writing. There are only two exceptions: to advise you that there will be no further contact, or to inform you of a pending action, such as the filing of a lawsuit. While further contact will end, you will still owe the debt.
  • Third parties cannot be contacted by debt collectors to discuss your debt, only to gain contact information. However, your attorney or spouse can be designated to discuss the situation on your behalf.
  • You cannot be threatened, harassed, or spoken to with profane or obscene language. Debt collectors also cannot lie or misrepresent themselves, the amount you owe, or who they work for.
  • You cannot be threatened with arrest.
  • A debt collector may not make threats regarding the seizure of property, wage garnishments, or any other action that is not legally authorized.

Dealing with debt collectors: When you do owe the money

If you truly owe the creditor who is contacting you, be proactive. Try to resolve the matter as quickly as possible, if you are able. The sooner you respond, the less damage will be done to your credit rating. Here are some proactive steps you can take:

  • First, if any debt collector has infringed your rights as stated above, report it to your state Attorney General’s office ( and the Federal Trade Commission ( While the federal rights outlined by the Fair Debt Collection Practices Act prohibit the actions as listed above, many states have their own debt collection laws that may vary. Your state Attorney General’s office can assist you. Note that these regulations cover the collection practices regarding personal debt, but not amounts owed in the operation of a business.
  • Check your personal records to confirm that the amount being collected by the creditor is correct. If you doubt the information being provided by the debt collector, request verification of the debt in writing.
  • Try to work out a settlement. Many times creditors will reduce the amount you owe — sometimes by as much as half or more — if you can show a hardship and offer a lump-sum payment. Determine how much you can afford, and then offer a settlement a bit less than that. Then negotiate the best deal you can, up to your budget limit. Remember, the debt collector is nearly as motivated as you are to come to some kind of agreement: they don’t get paid if you don’t pay. If you do make a deal, be prepared for another bill at tax time. The amount written-off by the creditor may be reported as income to the IRS and subject to federal taxes.
  • Be sure to get any agreement documented in writing before providing payment. For safety, as well as for creating a permanent record of the transaction, it’s best to issue the lump-sum as a cashier’s check or electronic transfer, rather than writing a check.

Dealing with debt collectors: when you don’t owe the money

Perhaps this whole matter is an ugly misunderstanding. Maybe your records have been confused with another creditor — or it could even be a matter of identity theft. Whatever the reason, here’s what to do when you don’t owe the debt:

  • Don’t agree to pay the debt, not even a partial payment, and don’t acknowledge the amount owed until you are convinced it is yours — with written proof.
  • If no proof of the debt is provided, instruct the debt collector in writing to discontinue all further contact and collection efforts.
  • If the matter is concerning an old debt, it may be uncollectable because of time limitations that are imposed on credit collections. Statute of limitations vary from state to state and for different kinds of debt. For example, the statute of limitations on credit card debts can be as long as 10 years, according to the Federal Trade Commission. Most states impose a period of three to six years. You may want to get assistance from a legal aid lawyer, your attorney, or your State Attorney General’s Office.
  • Check your credit report to make sure that there has been no negative impact to your credit rating.

Debt regret

Imagine what it must be like to have a job calling on people all day long to collect debts. It would make just about anybody cranky. Now, we’re not saying you have to be best buddies, but treating debt collectors with the same consideration and respect that you deserve and expect may help the matter pass with the least amount of stress for all involved.

Knowing your rights, understanding your options to negotiate and getting all information in writing will help protect you and your credit rating.

Everything You Need to Know About Your Credit Score

There’s just no denying it. By now, it’s clear to all of us that our modern lives are being monitored. What we do, say and buy; where we live — it’s all out there.

Our financial lives are of particular interest to Big Data. Especially your credit score. It’s one number that invisibly follows you everywhere, impacting your life in more ways than you may imagine. It is the ultimate grade. Here’s how it works and why it matters.

Who is keeping score?

credit scoreThe three big players in the credit score business are TransUnion, Equifax and Experian. They make their money selling your credit information, history and score to banks, businesses and even employers. Your credit report details your payment history, the amount of debt you’ve piled up — even where you work and live.  Plus, if you’ve ever been sued, arrested or filed for bankruptcy.

They compile all of this information and generate a credit score — basically a grade — of how financially reliable you are. The higher the score, the better. Each credit bureau develops their own score, but the information is also compiled and interpreted by Fair Isaac Corp., which generates its own “FICO” score. Generally, that’s the one most creditors use.

Why should I care about my credit score?

Your credit score plays a big part in your life, even if you’ve sworn off debt. But you haven’t have you? Well, if you are looking to rent an apartment, buy a house, purchase insurance or get a new car, your credit score is in play.

Want a credit card? Score!  Want to hook up to cable or satellite TV? Score!  Even if you’re trying to get a job, some potential employers will have you sign a disclosure so that they can access your score.  For better or worse, it’s a number that is being stamped on your life as a grade for your character and dependability.

What’s a good credit score? What’s a bad score?

Think of 7 as your lucky number. Generally, a credit score of 700 or more is considered favorable. Of course, things are never that simple. Each credit agency has its own score range with minimal variations — and then there’s an alternative scoring system called VantageScore. Developed by the Big Three agencies, it ranges from 150 to 990, just to confuse things a bit.

But the scores most reported, including the FICO score, commonly range from a low of 300 to a high of 850. Experian says that the average American has a credit score of 675, so at 700+ you’d rank above average.

Here’s how the curve is graded:

  • Anything under 640 is considered a poor score — You’re likely to be considered a high-risk borrower and that means your credit card interest rates will be much higher than average and you won’t qualify for a typical loan.
  • 641-680 is graded ‘fair’ — You may qualify for that loan or credit card, but your rate will be a higher than borrowers with a better credit rating.
  • A credit score of 681-720 is good — You’re in the pocket. With a score in this range you’ll get plenty of credit card offers, qualify for loans with good rates and pay lower insurance premiums.
  • 720 to 850 means you’re buying lunch — At this level you get the best rates on credit cards, car loans and home mortgages. 720 is the threshold to what is deemed a “perfect” score, so you don’t have to try to attain a lofty perch at 850, because no one will be handing out awards or additional perks.

What affects my credit score?

The “how and why” of your credit score doesn’t have to be a mystery. There are tangible reasons why your score changes, and specific steps that can be taken to improve your credit history and ultimately increase your credit score. Let’s look at what most impacts your credit score, according to the source itself: FICO.

  • Credit history (35%) – Timely repayment of borrowed money is the most important factor in your credit report, impacting 35% of your FICO score. This includes credit cards, retail accounts (like department store credit cards), loans and finance company accounts. Late payments can impact your score for up to seven years.  And your credit history also includes bankruptcies, foreclosures, lawsuits and other public record and collection items. Legal action can impact your score for 7-10 years, though the impact slowly lessens with time.
  • Amounts owed (30%) — Carrying a large debt load can lower your score, even if you make payments on time. Having used a large portion of your available credit can account for 30% of your credit score. FICO also considers remaining balances due, as well as the number and types of credit accounts you have.
  • Length of credit history (15%) — The longer you’ve managed credit, the better. Having a brief credit history can lower your score.
  • Types of credit (10%) — This is not a key factor, accounting for only 10% of your FICO score, but still a consideration. Having a good mix of credit: retail accounts, credit cards, installment loans and a mortgage, are all considered.  For example, not having a credit card can actually lower your score.
  • New credit (10%) — FICO believes that having several new credit accounts pop up in your report within a short period of time means you represent a greater lending risk, especially if you have a short credit history.

Tips to improving your credit score

So there are a lot of moving parts that make up your credit score. I know my head is hurting a little bit just writing about it. But here’s the good part. There are some fairly simple things you can do to improve your score:

  • Start early — You like this one, don’t you? It’s true, you have to begin building your credit history early, so get a credit card if you don’t have one.
  • Use no more than half of your available credit –- For example, if your Visa card has a $1000 credit limit, train yourself to use just half — or less — of that available credit. By thinking of your card as maxing out at $500 instead of $1000, and disciplining yourself to spend less than the credit limit, you will lower your “balance-to-limit” ratio, which can help raise your score. This only applies to revolving consumer accounts, not to your mortgage or installment loans.
  • Use payment reminders –- Since making timely payments is the greatest factor in your credit score, you may want to make the process as painless as possible. Using payment reminders or automatic debit payments can help, but remember to set the payments for an amount greater than simply the minimum required.
  • Pay off accounts but don’t close them — Once you pay off a credit card that you think would be best retired for good, don’t use it again — but don’t close the account, either. Keeping it open will maintain your available credit, and by not using that credit you’ll enhance your balance-to-limit ratio.

Know your credit score

You can’t fix what you don’t know, so know your number. First, order a free credit report. Each of the Big Three bureaus is mandated by law through the Fair Credit Reporting Act (FCRA) to provide you a free report once a year.  You can order all three reports at once or, by rotating your requests among each one, you can receive a fresh credit report every four months.  Yessir, now that’s good, clean fun!

There is only one official site for obtaining your free report and it is  Watch out for bogus sites claiming to be the official “free credit report” website.  You can also call (877) 322-8228 to order a free report.

Once you have your credit report in hand, you’ll want to check it for accuracy. Make sure your address and other personal information is correct and then review each credit account, looking for inaccurate amounts owed and verify that each credit account is actually yours.

If you find errors, you’ll need to contact the individual credit agency issuing the report to begin the correction process. You can find help on correcting credit report errors, including a sample dispute letter, at the Federal Trade Commission website.

When you’re diving into the pages of your credit report, you may start scrambling to find your credit score.  Let’s hope you stuck with me this far. You see, while your credit report is free, your credit score is not. You have to buy your FICO score for about $20 from

Some credit cards also provide your FICO score to you free, as a cardholder benefit.

And there are services that offer to estimate your credit score — some saying they will provide these “educational scores” for free — but it’s probably best to stick with the real thing.

The end game

Now that you know just how critical your credit score is to your financial life, you’re empowered to nurture your number.  The keys are to know your score — what it means and how to improve it.  In this case, Big Data, along with a big number, can help you live large.

What Are Robo-Advisors? And Why Are So Many Financial Advisors Against Them?

I was having lunch with a buddy I hadn’t seen in years. After catching up on ‘whatever happened to old what’s his name?’ the conversation naturally turned to the stock market, investing in general and retirement planning.

Hey, if you take a CFP to lunch—and you’re buying—why not get a little free advice?

He was thinking about changing financial advisors. Things were OK—he felt like the firm he was currently with did a good enough job, but they were raising their annual fees and frankly he wondered if he was still getting a good deal.

The firm he’s currently with is known for it’s home cooking: selling their own brand of under-performing mutual funds. In fact, about five years ago some employees sued the firm for stuffing it’s own 401(k) with mutual funds run by the company’s investment arm.  That’s when you know a financial advisory firm has a problem: when its advisors sue it for doing a lousy job of running its own retirement plan.

robo advisorI told my friend, “You should consider a robo-advisor.”

He looked at me as if I had just told him to get financial advice from a Star Wars character.

“What’s a robo-advisor?”

He almost looked like he was in pain.

So I told him. Robo-advisors are computer programs that put together an investment mix and monitor and adjust it automatically.

It’s doing what a financial advisor says he will do—but rarely actually does.

Here’s the thing. You hire a financial advisor and you think, “OK, he’ll keep an eye on things and make sure I stay on track for retirement.” But most of the time, advisors will steer you to some “model allocation program” made up of mutual funds or exchange-traded funds and charge you something along the line of a 1% management fee. And that’s in addition to the expenses built in to the funds or ETFs.

These programs are called “managed accounts” by the big investment and brokerage firms.

And that’s exactly what a robo-advisor is. A managed allocation program—without the 1% additional fee. Most of the leading robo-advisors—like Vanguard’s Personal Advisor Services or Betterment—charge 0.30% or less. And their mutual funds and ETFs have lower internal expenses than the average (or worse) mutual funds a lot of financial advisors recommend.

Vanguard claims the management fee difference alone can add over $90,000 of value to a portfolio over 20 years. Human financial advisors worry that robo-advisors will cut into their profits. And they should.

So my buddy took all this in and frankly seemed totally unimpressed. In fact, he sent me a text later asking about some investment plan that he had found online. A do-it-yourself allocation of mutual funds that he was apparently considering.

Maybe he’ll try to manage his own investments, or even stay with his current advisory firm. It doesn’t seem likely that he’ll go with the low-cost, machine-made investment option.

Perhaps I didn’t do a very good job of explaining robo-advisors to him.

So maybe he’ll offer to buy me lunch again.

Retiring on Real Estate: Perfect Passive Income or Pipe Dream?

“Mailbox money.” That’s what investors often call the passive income generated by real estate assets. It could be from rental income, house flipping profits—even dividends. The thought is, buy some property and wait for the checks to start rolling in. Can that still be done, or are such scenarios a pipe dream from a pre-recession world?

Big cash flow—and then a crash

Steve Olafson of Scottsdale, Arizona is a former plumber, auto mechanic and tech manager that now works real estate deals full time. The 2008 crash is still fresh on his mind.

“In 2007, I had over 1000 apartment units,” Olafson says on the blog. “The cash flow was very high.  All of that was wiped out by the crash.”

But it gets worse. After going on a major apartment complex purchasing spree in Phoenix during ’04 and ’05, he decided to geographically diversify. Olafson began buying units in Houston, Texas. A couple of years later, not only was the economy beginning to “drop a bomb” on Arizona, but a hurricane hit Houston.

“Gross incomes on my properties dropped by more than 50%,” he says. “I was lucky to pay expenses for a while. There was nothing left to give the lenders. I fought like crazy for a couple of years and finally got the income back up to where the full payment could be made.  I had to put all my reserves into the property and had nothing left to catch up the arrears that had accumulated. This is when the lenders foreclosed.”

Travelling the world on investment property profits

But Chris Morley, founder of Bien Realty in Manhattan, still sees people who are willing to take on at least a little risk in real estate.

“I have sold investment properties [in the city] to people currently living in the suburbs,” Morley tells MoneyCynic. “Their intention is to rent it out and get it paid off so when their kids leave for college they can leave the high taxes in the suburbs and live in NYC with no mortgage and less taxes.”

And then there is Dale Degagne, a financial planner from Ontario, Canada, who travels the world with his wife—on his profit from real estate investments. Currently living in Thailand, he says he bought his first rental property at age 21.

“I have mainly stuck to rentals, but I have owned multi-units, single families and student rentals. I have also done flips,” Degagne tells MoneyCynic. “Currently, there’s little money in commercial [real estate] at my price range.”

He says he “retired” at age 28 with five properties, hired a manager and hit the road. But before jumping into the real estate game, Degagne says investors should consider three keys to success:

  1. Pay off the mortgages. “Assuming you purchase property that is profitable from the start, not having a mortgage every month can significantly increase your profit. I know for me, [my profit] will double in 20 years when all the mortgages are paid off.”
  2. Hold the real estate for at least 10 years and keep good books. “In real estate you have good years and bad years, just like you will in any business and almost any retirement investment strategy. In a 10 year time frame you should see a) A trend in your real estate — prices, costs, profit b) What your worst year was, and c) From there you should be able to figure out a solid number that you can rely on. This is by far the most important point.”
  3. Have an exit strategy. “This involves planning how [the properties] will be taken care of when you’re still alive, but don’t want the bother of making any decisions on them. For this, my suggestion is training someone who will eventually inherit them to make the decisions. Bookkeeping and day-to-day management can always be outsourced. There’s no need to be fixing toilets in the middle of the night at 70 years old.”

No toolbox required

But to invest in real estate you don’t have to have a tool box and plumbing supplies. In fact, in some cases, you’re not allowed to manage or perform maintenance on such investments. For example, property can be purchased and placed in a self-directed IRA but financial and maintenance matters should be handled by a property manager. Performing work related to the IRA asset yourself is regarded as a ‘prohibited transaction’ by the IRS.

And for those who aren’t hands-on handy, real estate investment trusts may be a way to gain exposure to property income.

“A real estate investment trust (REIT) is a company that buys, develops, manages, and/or sells real estate such as skyscrapers, shopping malls, apartment complexes, office buildings, or housing developments,” Thomas Marino, a financial advisor in Cherry Hill, New Jersey tells MoneyCynic. “Rather than investing directly, investors in REITs put their money into a professionally managed portfolio of real estate.”

REITs make money from rental income, profit from the sale of a property, as well as other services provided to tenants, Marino says

“Because REITs are required to pay out 90% of their annual income in the form of dividends, you can expect to receive income from your REIT investment,” he adds. “A REIT may trade on the major exchanges, just like stocks, or be what is called a ‘non-traded REIT.’”

While Marino says non-traded REITS can presently pay a monthly dividend between 6%-7.5%, depending on the quality and the assets held, they are not considered as liquid as exchange-traded REITs, and can be very difficult to sell on the secondary market.

“Because non-traded REITs may involve substantial redemption fees, they are best suited for long-term investors who will not need access to their invested capital in the short term,” Marino adds. “Also, distributions are not guaranteed and can be suspended or halted altogether.”

But no toolbox is required, either.

This article was originally published on

That Lexus You’re Driving Is a Ticket Magnet: The Top 20 Most/Least Ticketed Vehicles

Sure, it’s the driver that gets the ticket, but the vehicle offers a lot of clues about the driver. The Lexus ES300 is likely to have an impatient driver behind the wheel. The Buick Encore? Well, granny’s in no hurry.

And knowing if the vehicle you’re thinking about buying is a ticket magnet can impact your budget, whether you’re a lead foot or not.

The Lexus ES300 lapped 2014’s most-ticketed car, the Subaru WRX, according to a new report by One third of the stylish Lexus sedan’s drivers reported getting a ticket during the past two years.

Driving a most-ticketed vehicle can be a pain in your pocketbook, even if you’re not the one on the side of the road smiling sheepishly at the cop.

“It’s notable that cars on the most-tickets list also appear to have an above-average number of insurance claims,” says Penny Gusner, consumer analyst for Nearly one-quarter (23%) of surveyed drivers at the top of the ticket list filed an insurance claim during the survey period, while only 19% of all other cars made insurance claims within that timeframe.

Vehicles with high insurance claims result in higher premiums for everyone driving the same model.

The top 20 most-ticketed vehicles and the percentage of drivers who reported receiving a traffic violation from Feb. 2014 through Feb. 2016 are:

  1. Lexus ES 300 – 33%
  2. Nissan 350Z – 33%
  3. Dodge Charger SE/SXT – 32%
  4. Volkswagen Jetta GL– 31%
  5. Chevrolet Monte Carlo LS/LT – 31%
  6. Mazda 3S – 30%
  7. Volkswagen GTI – 30%
  8. Dodge Stratus SXT – 30%
  9. Acura 3.0s – 30%
  10. Toyota Tacoma – 30%
  11. Mazda Tribute – 30%
  12. Subaru Impreza WRX – 30%
  13. Lexus LS 400 Series – 30%
  14. Subaru Impreza 2.5I – 30%
  15. Mercedes-Benz C300 4 Matic – 30%
  16. Chevrolet Malibu 2LT – 29%
  17. Lincoln LS – 29%
  18. Ford Fusion S – 29%
  19. Mazda 3I – 29%
  20. Chevrolet Tahoe K1500 – 29%

The top 10 vehicles with the least-ticketed drivers were:

  1. Buick Encore – 3%
  2. Lexus IS350 – 3%
  3. Acura ILX – 6%
  4. Cadillac ATS – 6%
  5. Chevrolet Express – 8%
  6. Cadillac Escalade – 8%
  7. GMC Savana – 9%
  8. Audi A3 2-Series – 9%
  9. BMW 320I – 10%
  10. Land Rover Range Rover – 11%

U.S. Marshals Office Arrests Man for Delinquent Student Loan — And There May Be More Arrests On the Way

Can you really be arrested by federal marshals for an old student loan debt? Yes. It happened in Houston last week and more arrests may be on the way.

Fox 26 HoustonA report by Fox26/Houston says Paul Aker was arrested at his home last week because of a $1,500 student loan dating back to 1987.

“He says seven deputy U.S. Marshals showed up at his home with guns and took him to federal court where he had to sign a payment plan for the 29-year-old school loan,” the report says.

In an interview, Aker contends that there was no contact within the last 30 years regarding the debt and that, as the reporter relates, “seven people in combat gear with automatic weapons” arrived unexpectedly at his front door.

“I was wondering why are you here? Why are U.S. Marshals knocking on my door?” Aker said. “Totally mind boggling. I was told I owed $1,500 and I couldn’t believe it.”

The Fox26 interview with Aker is dramatic — but leaves out some important information.

An official statement issued by the U.S. Marshals office, provided to me by spokeswoman Donna J. R. Sellers, fills in the missing details.

“Since November 2012, U.S. Marshals had made several attempts to serve a show cause order to Paul Aker to appear in federal court, including searching at numerous known addresses. Marshals spoke with Aker by phone and requested he appear in court, but Aker refused. A federal judge then issued a warrant for Aker’s arrest for failing to appear at a December 14, 2012, hearing,” the statement says.

When two deputy U.S. Marshals arrived at Aker’s residence, apparently things got a bit more complicated.

“When they attempted to arrest him, Aker resisted arrest and retreated back into his home,” the Marshals office statement continues. “The situation escalated when Aker verbally said to the deputies that he had a gun. After Aker made the statement that he was armed, in order to protect everyone involved, the deputies requested additional law enforcement assistance. Additional deputy marshals and local law enforcement officers responded to the scene. After approximately two hours, the law enforcement officers convinced Aker to peacefully exit his home, and he was arrested without further incident.”

So, you can be arrested for unpaid student loans. However, first you will have to ignore repeated collection notices and refuse to appear in court.

Aker signed a payment agreement for the $1,500 student debt, and along with $1,300 to reimburse the Marshals office for the expense of his arrest, plus penalties, interest and other fees, his bill now totals over $5,000.

In fact, the U.S. Marshals office says others may soon experience visits by local authorities.

“In Houston, approximately 1,500 individuals have been identified by the court as defaulting on federal loans,” Nikki Credic-Barrett, a spokeswoman with the U.S. Marshals Service said in an email response to my inquiry. “These individuals have not been contacted yet to address their debt in court.”

Bottom line: Unpaid student loans never go away.

The Truth About Rocket Mortgage: Here’s Your Reality Check

“What if we did for mortgages what the Internet did for buying music and plane tickets and shoes? You would turn an intimidating process into an easy one. You could get a mortgage on your phone. And if it could be that easy, wouldn’t more people buy homes?” the Rocket Mortgage Superbowl ad said.

And the critics came howling.

“Bold move by Rocket Mortgage titling its Super Bowl ad: ‘Hey the 2008 financial crisis wasn’t so bad, right? Right?'” one Tweeter said.

“Rocket Mortgage: Let’s do the financial crisis again, but with apps!” said another.

What a bunch of knuckleheads.

Rocket Mortgage isn’t looking to crash the economy, it’s doing something even more radical: it’s transforming an archaic, discriminating, painfully intricate industry.

For most people, it’s damn hard to get a mortgage. It’s an arduous process with piles of paperwork, near-endless forms and mind-numbing disclosures.

If Rocket Mortgage can disrupt the industry, more power to it.

But here’s the reality check. Rocket Mortgage is not handing out no-doc, subprime mortgages set to spark the next Financial Crisis. They’re not hawking mortgage-backed securities, collateralized debt obligations or credit default swaps. They’re selling fully underwritten mortgages — and making it easier to apply.

So the truth is, making it easier to apply for a home loan means that it’s more convenient (but not easier) to get approved — or to be turned down for a loan.

Thousands of people may — may — rush to “push button, get mortgage” and just as quickly get declined.

Rocket Mortgage is owned by Quicken Loans and as Quicken CEO Jay Farner told CBS News, “Quicken Loans is known for having some of the highest credit standards in the country.”

So good luck pushing that button.

There’s nothing easy about getting a mortgage. But streamlining the process and making it more convenient? Yeah, that’s a good idea.

Retire Before Age 40: How This Couple Made the Retirement Dream Come True

KaderlisIt’s the opposite of working till you drop. Retire before 40. There’s no shortage of blogs stating just such an intention. The writers share their own personal mantra of how to pay off debt, save more money and begin life after work while you’re still young enough to enjoy it. Some are working toward the goal, others claim to have achieved it. Most are only a few years into their effort either way, so whether they achieve long-term success or just a huge resume gap, remains to be seen.

But Akaisha and Billy Kaderli retired at age 38 – and that was 25 years ago. To say they have achieved proof-of-concept is an understatement.

“We’ve got enough that if we can control our spending a bit, we can live anywhere we want.”

Coming to a crazy conclusion

Billy, a French chef, and his wife Akaisha bought a Santa Cruz, California restaurant in 1979. Later he became a financial advisor while she continued running the popular eatery. After six years of her serving hot dishes to customers and him cold-calling prospective clients, things were getting a little tense at home.

“It got to a point where ‘Kaish and I weren’t seeing each other anymore,” Billy tells Money Cynic. “She was running the restaurant and working nights — and in California the stock market opens at 6:30 in the morning and I was done at one o’clock. I’m at the beach, and she’s just going in to do the dinner shift.”

Being a “numbers guy,” he took stock of their assets and came to a seemingly crazy conclusion.

“All of a sudden it just clicked. I said, ‘We’ve got enough that if we can control our spending a bit, we can live anywhere we want.'”

Running the retirement numbers

She was not so sure.

“I was 36 at the time, and that wasn’t in my plan at all,” Akaisha admits. “I figured that I’d work until I was 55, and that would be ‘retire early.’ And he comes with this harebrained idea that we’re just going to chuck it all.”

It took a little convincing, to say the least.

“We were tethered to our jobs, to our bills,” she says. “And the idea that we could chuck it and live comfortably really was appealing. Once I calmed down.”

They analyzed their spending — so much of it was work related. Two cars, a house near the beach, insurance, meals out; the usual American overhead. The Kaderlis took two years to “test the waters” before making the leap in January 1991. Their nest egg? $500,000.

$500,000 to last a lifetime? Seriously? Can that work? It does when you spend just $22,000 a year in living expenses. As of the end of 2014, after 24 years – 8,760 days, Billy notes — the Kaderlis have spent an average of $22,040 annually or $60.38 per day. Basically the Kaderlis are living on the 4% withdrawal rule.

“2008 did rock our boat”

“The S&P 500 on the day we retired was 312.49,” Billy tells Money Cynic. “And if you do the math on that, up to last year, that’s about an 8.18% return, plus dividends. So with a couple percent for dividends, you’re right at the 10% level.”

Don’t you love the way he says “about” and then quotes a hundredth decimal point return? When it comes to numbers, this guy is not guessing. But after a sustained bull market, isn’t he a bit leery of a long-overdue correction?

“2008 did rock our boat,” Billy admits. “At this point, we’re a little more conservative in our investments because we’re now 62. We’ve gone through three or four of these down draws in the market. So, am I nervous? I’m always nervous.”

But Billy says it’s not just what you make, it’s what you spend.

“The key to this whole thing is: How much are you spending today on your lifestyle? If you’re spending level is $100 a day then you just have to have the assets — the net worth invested — to support that. That’s all.”

Retirement living in ‘cost beneficial countries’

Kaderlis-2However, it’s a safe bet that many Americans, at least those contemplating retirement, are living on much more than $100 a day.  And will require a large enough nest egg to support their current rate of spending. The Kaderlis admit that part of their strategy is living in “cost beneficial countries” such as Mexico, El Salvador, Vietnam, and Thailand. When we spoke via Skype, they were living in Lake Atitlan, Guatemala, one of their favorite stops.

“Housing is one of the largest expenditures in any budget. So if you work on getting  your housing down to an affordable amount per month, you can live just about anywhere,” Akaisha says. “It’s housing, transportation, taxes and food — but housing is your biggest [budget item].”

They don’t live by a budget, but to this day track their spending diligently. The Kaderlis spend 21% on housing, 24% on medical expenses (a spend rate that has been impacted by some recent health issues), 20% on transportation, 22% on food and entertainment, 8% on miscellaneous, and 5% on computer expenses. These are net expense amounts, after taxes.

Their housing costs have been reduced almost in half by house sitting. The couple says these stints can include spectacular beach views in well-appointed homes with maid service. Otherwise, they find monthly rates for apartments or hotels.

Low-budget living in the U.S. 

Can such low budget living work in the States? The Kaderlis say you have to get creative, look for low cost-of-living areas and consider renting out a room, a floor — or owning a duplex and leasing out half of that to a tenant.

Health insurance is also a major consideration. In the beginning, they bought a high deductible, catastrophic coverage plan. Now, when they visit the U.S., they take out a traveler’s policy. Day-to-day, living outside of the States, the Kaderlis are exempt from the Obamacare health insurance mandate.

“We’re self-insured,” Akaisha says. “We pay out-of-pocket for all of our medical expenses.” The couple also relies on their own version of medical tourism, visiting favorable foreign locales for healthcare.

And they don’t own a car. They used to own a vehicle, but now use local mass transit, walk, bike, share rides with friends, or hire a driver. It’s a debt-free lifestyle built on frugality – and freedom.

“The financial industry is not doing their job,” Billy says. “Debt is the killer. You’re a wage slave when you have debt. And if you can eliminate that, it frees up a whole lot of options.”

Check out the Kaderli’s website:

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