Ask Dr. Per Cap

Ask Dr. Per Cap is a program funded by First Nations Development Institute with assistance from the FINRA Investor Education Foundation. Nimiipuu Community Development is happy to share this column as partner with Native Financial Learning Network funded by Northwest Area Foundation.

Zombie Debts

Dear Dr. Per Cap:

Last week a collection agency contacted me about an old debt from ten years ago.  I thought they couldn’t chase down debts more than seven years old so what gives?

Signed, Don’t Want to Pay

Dear Don’t Want to Pay

Yikes!  We’ve seen an increase in aggressive collection practices in recent years.  Debt purchases by collection companies are also on the rise as well as the pursuit of what are known as “zombie” debts, like yours, that can be years or even decades old. Sadly these unnerving trends appear to align with record levels of household debt along with increasing defaults on credit cards, auto loans, and student loans.

Here’s the short answer to your question – Yes.  Creditors and collection agencies can pursue old zombie debts regardless of whether it is Halloween.  Ba-dum-bum-CHING!  Sorry, I couldn’t resist.

The seven year statute of limitations applies to how long an unpaid debt or delinquency can be listed on your credit report.  Moreover, in most states a collector can only sue a person for repayment of an old debt for four to six years after the last payment was made.  Most collectors will give up trying to collect after this period because the chances of recouping any money are low, but technically there’s no law that says they can’t try.  They just can’t sue in court.

Now for some good news.  There is an effort to overhaul the Fair Debt Collection Practices Act. The FDCPA was written in 1977, long before cell phones and other advances in communication technology that enable debt collectors to pursue borrowers using a variety of channels, so an update is long overdue.

In its current form the proposed modification would reduce the number of phone calls a debt collector can place each week.  Proposed changes would also require debt collectors to provide more information to consumers about the accounts they are pursuing in addition to restrictions for how debt collectors report information to credit bureaus.

Now the bad news.  This overhaul, introduced in 2016, is taking a really long time to unfold.  Even worse it probably won’t be a perfect fix.  For example while the proposal recommends fewer phone calls, it places no limit on the number of texts or emails a debt collector can send which are an invasion of privacy just as much as calls.

Back to your situation.  First step is to pull your credit report from to check if the old debt is listed on your report.  If so, file an online dispute to have the debt removed because it is more than seven years old.  If it’s not listed on your credit report don’t worry about.

That’s right I said it.  I wouldn’t pay an old debt that’s not on my credit report either.  The only way I might consider paying is if the debt is for a utility or some other service you might need in the future.  Otherwise remember the number one rule from the movie Zombieland – Cardio!

Payroll Tax Deferral

Dear Dr. Per Cap:

I’m a federal employee (Indian Health Service) and just found out the government is changing the way payroll taxes are withheld.  How will this effect my paycheck?

Signed, Health and Wealth Minded

Dear Health and Wealth

The payroll adjustment is a temporary tax deferral resulting from a presidential order.  Its purpose is to help folks who might be struggling financially due to the pandemic.  The order allows employers to temporarily defer social security tax from employee paychecks.  The important word here is “defer”.  That means the tax still has to be paid just delayed until January of next year.  At that time deferred taxes will be added back to paychecks in installments through April.

Federal employees and active duty military are already seeing their social security tax automatically deferred so the program is not voluntary.  The deferral is also available to private, state, and tribal employers although not many non-federal employers are opting in.

That’s probably because there hasn’t been a lot of detail regarding how the deferral payback will work.  Moreover, while a bigger paycheck today might be helpful, it just delays the inevitable and a smaller paycheck beginning next year.  Interestingly, the president has stated he will forgive the deferred taxes, meaning employees won’t have to repay them, if he wins another term in November but obviously that’s a crapshoot and forgiveness will still require congressional approval.

The deferral is also only available to employees who earn less than $4,000 bi-weekly.  In most cases that applies to a federal employee who is a GS-13, step 5 and below.  Now let’s look at the math to see how the social security tax deferral impacts a paycheck. 

Let’s say you earn a biweekly salary of $2,200 or $56,000 a year.  The social security tax a person must pay on that income amounts to 6.2%.  Therefore a typical paycheck will have $136.40 of social security tax withheld ($2,200 x .062).  Because there are eight pay periods from when the deferral began in mid-September through the end of the year, a person earning $2,200 each pay period will see a temporary bump in pay totaling $1,091.  Not a giant windfall but enough to pay some bills or go Christmas shopping.  However, don’t get carried away because the deferred tax will probably need to be paid back beginning in a few months. Also remember the deferral only applies to social security tax.  It doesn’t defer other types of withholding on a typical paycheck such as 1.45% for Medicare, federal and state income tax, health insurance premiums, 401-k contributions, or garnishments.  I think Albert Einstein had it right when he said “The hardest thing to understand in the world is the income tax.”

Sage Advice

Dear Dr. Per Cap:

I just graduated high school and will turn eighteen in a few weeks.  What’s your advice for a young person who wants to get ahead financially?

Signed, Looking Ahead

Dear Looking Ahead

Congratulations on your high school diploma!

What I’m going to tell is just as true when I graduated high school back in the eighties as it is today.  And it’s about more than just managing your money wisely.

Over the years I’ve had the privilege of working with a lot of folks, Native and non-Native alike, who were struggling financially – poor credit, difficulty keeping up with bills, minimal savings, etc.   And I can say that there is almost always at least one of three missteps or pitfalls early in life at the root of their financial challenges.

The first is an unplanned pregnancy at an early age – female or male it doesn’t matter.  When a young person who hasn’t yet established a career or livelihood becomes a parent it’s very difficult to get ahead financially.  The enormous cost of caring for a child as well as the emotional toll of parenting cannot be overstated.  I’m not saying it’s impossible to be a good young parent while building a strong financial foundation but it’s really rare.  So take precautions like my uncle used to tell me every time he handed me the keys to his Silverado for a night out.  Yeah, you know what that means.

The next misstep is getting hooked on drugs or alcohol.  This is another huge tax on a young life that can take years to overcome if ever.  It seems like money problems and a chemical dependency habit go hand in hand.  In large part because a party lifestyle is a breeding ground for bad habits that will crash a bank account quicker than an brush fire with a tail wind.

Last is heavy debt.  Car loans, credit cards, student loans – even if the borrowed money is going toward a good cause like a person’s education.  It’s just too easy to get wrapped up in a vicious cycle of debt.  And I know so many people in their thirties and forties who are still paying for junk they bought on credit in their early twenties.

Avoiding these three pitfalls will put you so far ahead in the game of life.  I realize for many people this might be much easier said than done but I won’t sugar coat a dose of tough love.  Personal responsibility is the first and perhaps most important step toward building a healthy financial future.  See you in the short line!

Break the Funk

 Dear Dr. Per Cap: 

I’ve been having a hard time focusing on my financial goals lately.  I just can’t seem to stay motivated to save for a down payment on a house.  My kids are really looking forward to having a place of their own too.  How can I break this funk?

Signed, Loosing Focus

Dear Loosing Focus

I can totally relate.  I think many of us are struggling to stay on point during these troubling times.  Much of what you’re feeling is stress.  Fortunately mental health experts have developed techniques and strategies for how to manage it.

For starters it’s possible you’re feeling overwhelmed because of challenges you’re facing right now.  So grab two sheets of paper and make two lists.  On the first sheet write down things that bother you that are beyond your control such as economic turmoil, remote schooling for the kiddos, or unforeseen health risks.

Next make another list of things you can control.  Your list might include activities you do with family, exercising, eating healthy, and social distancing.

Now take the first list, tear it in half, and throw it in the trash.  You can’t control the things on that list so don’t stress thinking about them.  Then take the second list and post it somewhere where you will be reminded of it daily – the refrigerator door, bathroom mirror, or better yet snap a photo of it with your phone and use it as a home screen.

Hopefully this will help you focus on manageable issues and maintain self-control.  Self-control is extremely important right now especially with so many of our daily routines with work and family turned upside down.  I speak from personal experience when I say sometimes it’s actually harder to get stuff done when we have too much time on our hands than not enough.  I know it sounds crazy but it is true – says the guy who has only worn flops for the past  six months.  Just kidding, well kind of.

Here’s another technique.  Pretend you have a crystal ball and can peer into the future.  While doing so imagine seeing yourself financially secure and living comfortably in your new home.  Picture your family next to you and the health and happiness you all deserve.  Think about upcoming birthdays and other fun gatherings.  Visualize the life you want to have.

Finally identify the obstacles or roadblocks that can prevent that life.  This will help you realize that you can achieve your goals but only if you focus and maintain self-control.  You won’t get there by worrying endlessly about the future, staying up late watching eighties music videos on YouTube, or making poor financial decisions.  Ok, eighties music on YouTube isn’t a total waste of time, but watch out for what we like to call time bandits.  They’ll bleed you dry – even worse than a power ballad by Poison.

Good luck and be strong.  I’m pulling for you!

Paper Towel Worries

Dear Dr. Per Cap:

Do you think it’s smart to stock up on paper towels and toilet tissue in case we have another shortage like when Covid-19 hit this spring?

Signed, Thinking Ahead

Dear Thinking,

That depends on if we see a second wave of coronavirus this fall and how serious it gets. But first let’s talk about what caused the shortages that cleared the bulky paper product aisle at Walmart faster than the family restroom after grandpa takes a double dose of Ex-Lax. Moreover, why
are so many stores still understocked, unable to catch up after last spring’s paper towel shortages?

It starts with how most businesses operate today using a strategy called “just-in-time inventory” which allows them to produce or stock only enough goods to sell quickly. Rather than producing and storing surplus goods for future sales, just-in-time inventory allows businesses to run lean thus saving money and increasing profits. However, there’s a downside to this approach that gave us a rude awakening earlier this year when stores ordered between five and ten times their normal weekly amount of paper
towels. During an emergency when people stockpile there are shortages.
The good news is that toilet tissue supplies are pretty much back to normal so you can probably ease up on your quest to find a modern alternative to that old Sears catalog grandma kept in the outhouse.

Ughh…I’m showing my age. However, paper towels are still running low with people cleaning more during these health and safety conscious times.
Unfortunately, fixing the shortage isn’t as easy as telling paper towel companies, like Proctor and Gamble, to crank up production. Just-in-time means factories today aren’t even designed to produce and package surplus goods. Factor in distribution centers that are quickly overrun plus stores with small loading docks that can’t fit extra truck deliveries, and we’re talking about an entire supply chain overwhelmed. Alleviating these challenges requires manufacturers and stores to radically redesign
equipment and infrastructure along with longstanding ideas about how to run businesses.

So get used to living with limited supplies of paper towels on store shelves for a while. And if coronavirus comes roaring back I think we’ll see a repeat of last spring. But let me pose a crazy question. Do we really need disposable paper towels in the first place? Back in the day we all got along just fine with dish clothes, sponges, mops and other non-disposable cleaning products. Yeah, yeah I know the Sears catalog wasn’t non-disposable but you know what I mean. In the grand scheme having enough paper towel should be one less issue to stress over.