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Credit Card Issuers Cracking Down On Consumers

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This from CNBC today:

Credit Card Issuers Cracking Down On Consumers

By Joseph Pisani News Associate | 06 Oct 2008 | 11:01 AM ET

As the credit crunch weighs on the financial services sector, credit card issuers are tightening lending terms with consumers to lower their risk profile, from cutting borrowing limits to closing dormant accounts.

“Banks need to be more conservative in how they are lending," says Carole Kaplan, director of public relations at the American Bankers Association.

A survey of credit card industry executives in July found that 62 percent of their companies planned to reduce lines of credits because of economic conditions, according to Javelin Strategy & Research.

While changing a customers credit limit is nothing new, representatives of the largest cars issuers in the U.S., Bank of America, JPMorgan Chase and American Express, say they are increasingly cutting credit card limits for their customers because of the downturn. (Citigroup [C 16.18 -1.23 (-7.06%) ], another large credit card issuer, did not return calls in time for publication.)

Though American Express [AXP 29.88 -0.19 (-0.63%) ] routinely changes the credit limit of 20 percent of its customers every year, more limits are being lowered than raised this time around, according to Kim Ford, a spokesperson at the company. This year, only one out of two customers saw an increase, versus four out of five in the recent past.

Ford says it reflects a change in the criteria used to assess riskier customers, factoring in such things as whether the card holder has a subprime mortgage, the geographic location of the home and whether home prices are falling in that area.

American Express is not alone. “We’re working more aggressively to control risk,” says Betty Riess a spokesperson at Bank of America [bAC 26.08 -6.14 (-19.06%) ], adding the company is also closing accounts of customers that have had a zero balance for over a year and have a riskier profile.

A spokesperson at JPMorgan Chase [JPM 41.35 -2.65 (-6.02%) ] says the bank is also taking a second look at riskier customers as a result of economic conditions.

Like much of the credit crunch, the changes may mean little to those with the best credit or those who spend and borrow judiciously.

But cutting credit limits or closing accounts can have a negative effect on a consumer's credit score, or FICO, says Liz Pulliam Weston, a personal finance columnist and author of “Deal with Your Debt." That's because one way credit scores are calculated is by looking at the debt-to-available credit ratio. The closer the debt to the credit limit, the lower your credit score.

A credit limit reduction, for instance, can lower your credit score by 30 to 40 points, says Weston.

“It’s not consumer friendly,” says Ben Woosley, director of marketing and consumer research at CreditCards.com.

With lower credit limits, cash-strapped consumers, will have less of a back up— and in some cases none at all—when things get tough.

"It's going to, in turn, effect discretionary spending," says Bruce Cundiff, director of payments research and consulting at Javelin Strategy & Research.

So, here’s how to prepare for any changes.

Pay Attention

A change in credit lines or account closures will be communicated in writing. Woosley says consumers should check online statements as well as regular mail, as some of the notices can look like junk mail.

“You should know your credit score by checking it at least once a year, says Weston.

She suggests using myfico.com, and making sure there aren't any errors on the report.

Appeal The Decision

If you get a notice saying your credit limit is being reduced, you still have a chance to call up the company and try to reverse the decision, especially if you feel your credit score is in good standing. Sometimes, mentioning the possibility of changing card issuers can help. “Consumers still have some power,” says Weston.

Use Your Card

If you have a dormant, or inactive, card—one with a zero balance on a regular basis—use it for small purchases, recommends Kaplan. “It might be a good idea to go out and use it, so it doesn’t look like it’s sitting there unused,” she said.

Don’t Miss Payments

An obvious piece of advice, but worth repeating, try to pay your balance in full every month, avoiding interest and finance charges.

Companies are less likely to take action "if you have good credit," says Kaplan.

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We're in for a very long, nasty downturn. People are just going to HAVE to learn to live within their means rather than relying on credit cards.

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All true - however, I also heard a very good discussion on (non-partisan) talk radio today: that banks are going to HAVE to ease up a little, because if they don't lend $, they don't make $.

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For someone who is recently out of BK7, this is discouraging. I was looking forward to establishing a new card, using it lightly each month and paying it off in full. Now I fear I won't be able to establish new credit in the current climate

1) Is there any information out there about how this mess affects new credit card applicants with recently discharged BK's?

2) Does anyone have current knowledge/advice of which cards to apply to? (Since the credit crunch, I mean.)

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For someone who is recently out of BK7, this is discouraging. I was looking forward to establishing a new card, ...

In the name of Beelzebub's bony buttcrack, WHY? You just BKed and you're thinking about going into debt again? Even "lightly" using debt fails to correct the behavior that got you into trouble in the first place.

You should be working to establish a monetary beach head first. By that I mean putting away cash into an emergency fund equal to 3-6 months of expenses, learn to work on a cash budget for a while, save-save-save, and only after you have gotten into a real comfort zone of good spending and saving, then consider getting back into those shark infested waters. The truth is you will likely find yourself not needing or wanting debt again once you are in a position to pay cash for things.

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I have a feeling the banks and CC companies will be doing everything possible to add on more bogus fee's, interest,overlimits, late fee's and whatever to try and offset some of the revenue loss, even worse than what they do now

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All true - however, I also heard a very good discussion on (non-partisan) talk radio today: that banks are going to HAVE to ease up a little, because if they don't lend $, they don't make $.

I said that a couple of weeks ago in a thread...I agree 100 percent...They have to loan money to make $. :)

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We're in for a very long, nasty downturn. People are just going to HAVE to learn to live within their means rather than relying on credit cards.

Good point ....I saw a lady in the post office 2 weeks ago buy a stamp with a AMEX CARD!!!!!!!!! COME ON!!!!! I went to my local Staples to get some copies and Fax.....YOU Can't pay cash anymore at the copy counter...THE girl told me to go over to these copying machines and use my CC!!!!!! Come on .09 cents a copy I was only making 4!!!! And their were SHEEP DOING IT!!!!!! With smiles on their faces!!!!!! I laughed and shook my head and walked out...They (the worker and other customers) looked at me like I was crazy!!!! I just think that is a waste of money, credit, and brains....

Go to ATM or bank take out 20 or 50 bucks and buy a alll acess pre paid or go to the library!!!!!:!::hmmmmm:

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The last three months I have received the most/best credit in my life.

1. Home Loan @6% no PMI.(3 months ago-VA loan with 10% down, buying a house the owners had to get out of, so got a great price in a really good neighborhood)

2. New Truck Loan @ a decent rate from Citi. (3 weeks ago. Was approved by GMAC,and two other banks, but took Citi because of best rate)

3. First real CC with $3k limit, no annual fee, and 0% interest for a year from WAMU. (last week-had the offer in the mail for about a month and decided to apply on a lark, combined all my (3) Capital One cards into the one. Been trying to get Cap ONe to combine them for years with no luck)

My scores are OK, but not great now and all my baddies are almost 2 years old. *shrugs* I guess this has come from belonging to CIC and understanding your credit.

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I went to my local Staples to get some copies and Fax.....YOU Can't pay cash anymore at the copy counter...THE girl told me to go over to these copying machines and use my CC!!!!!! Come on .09 cents a copy I was only making 4!!!! And their were SHEEP DOING IT!!!!!! With smiles on their faces!!!!!! I laughed and shook my head and walked out...They (the worker and other customers) looked at me like I was crazy!!!! I just think that is a waste of money, credit, and brains....

At the Staples nearby me, a credit card is one of two ways to pay for copies at the self-serve copiers. The other method is the same one that Kinkos uses: A self-serve machine that dispenses a card that you can load money onto by putting dollar bills in to the machine (I don't remember for sure, but I think the card will also take $ 5 bills).

Personally, I don't have a complaint about using a credit card at Kinkos or Staples since that means not having to carry around another card with me (the Staples/Kinkos copier card). Besides that, my experience with those types of cards when my local library used a similar system for the printers is that the magnetic stripe is very susceptible to failure from becoming scratched easily over a short period of time; that's a scary scenario when you still have several dollars in value on the card. Furthermore, if several dollars are left on the card, I don't want the bother of keeping track of that card. If you lose the card, you've literally lost money; that's the way I look at it.

But where I do have a problem is with my local post office getting rid of the self-serve stamp machines that have been around since I was a kid where you put coins or bills in to the machine and then push a button to have a stamp dispensed. Last summer that was suddenly yanked out and replaced with a stamp dispensing machine ( a ) with a software interface with lots of screens you have to proceed through before being allowed to purchase stamps and ( b ) that only takes debit/atm card or a credit card.

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My point on the copies is that if you are only making 2 0r 3 at 9cents each I think it is really stupid to use a credit card to finance that. If you are making a lot of copies yeah I can understand somewhat, but I just don't like swiping my card everywhere....:)

My post office got rid of their self serve machines too. Now I have to wait in line to buy stamps. I am lucky though in that sense I work nights so when I do go there and buy stamps there are hardly any people there at all. :)

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I went to my local Staples to get some copies and Fax.....YOU Can't pay cash anymore at the copy counter...THE girl told me to go over to these copying machines and use my CC!!!!!!

I was at the Lowry Zoo in Tampa today and they had credit card swipers on the vending machines...to pay for your bottle of pop/water. Considering that there is a % fee on each sale and a minimum processing charge, about 37 cents of each bottle dispensed on one of these machines is going to the card processors.

It really is getting nuts.

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My point on the copies is that if you are only making 2 0r 3 at 9cents each I think it is really stupid to use a credit card to finance that. If you are making a lot of copies yeah I can understand somewhat, but I just don't like swiping my card everywhere....:)

My post office got rid of their self serve machines too. Now I have to wait in line to buy stamps. I am lucky though in that sense I work nights so when I do go there and buy stamps there are hardly any people there at all. :)

If you find yourself going to staples more than 3-5 times a year for a few copies, consider getting yourself an all-in-one printer. Scan, copies, print and (optionally though I took the option) fax. Newegg's got some awesome deals.

I spent $60 on such a device that was brand new (not $100, $200..sixty dollars...very cheap). Oh yeah, you will spend money every few months on INK, but when I saw the convenience of having this device in my home instead of waiting until a work day to make copies, or, Heaven Forbid I was on vacation, SCHLEPING to Staples to make those copies....I have never been happier.

Then you won't need to spend waking nights why you'd need a Visa or Mastercard to spend 36 cents making copies. 8-)

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In the name of Beelzebub's bony buttcrack, WHY? You just BKed and you're thinking about going into debt again? Even "lightly" using debt fails to correct the behavior that got you into trouble in the first place.

You should be working to establish a monetary beach head first. By that I mean putting away cash into an emergency fund equal to 3-6 months of expenses, learn to work on a cash budget for a while, save-save-save, and only after you have gotten into a real comfort zone of good spending and saving, then consider getting back into those shark infested waters. The truth is you will likely find yourself not needing or wanting debt again once you are in a position to pay cash for things.

I agree, Methuss, but it is important to reestablish credit for later. Having one card with maybe a $500 limit (and you only charge $50 each month on it and pay it off each month) is a good thing.

But absolutely, stashing some cash is ALWAYS a good idea, in good times or bad.

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You all should know that if you are ever investigated for ANYTHING, any amount of cash in your house will be forfeit as probable gains from a felony. Same with driving around. So if you're going to buy a vehicle from craigslist, you'd better hope you don't get pulled over on the way.

This is TRUE! You can tell them "like hell" all you want but it's a big earner for them and costs way more to get back than it's usually worth. There's hundreds of threads on this at the legal forums.

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I agree, Methuss, but it is important to reestablish credit for later.

I'm not so sure anymore. I've done extraordinarily well since my last BK by not borrowing for anything. Not even considering the gift money I received, I have managed to put away nearly $20k in six months by not borrowing and shopping smarter.

I buy less "stuff" now because I don't have a ready line of credit to pay for impulsive purchases. I find that a lot of occasions by the time I get home to get enough cash to make the purchase, I have thought myself out of it. I'm more conscious of prices now because paying with cash has a little pain to it (or in the case of a car, a lot of pain).

At the rate I am going I am currently able to pay cash for a new car now and/or will be able to pay cash in full for another decent sized house in 2 years if I want to. And if I do decide to finance any portion of a house purchase, there isn't a lender in the world that will turn down a 15-year fixed mortgage (my only exception to not borrowing) with a downpayment of 50-75%.

Do I even care what my credit score is anymore? Nope. I do care about false reporting because it can affect job opportunities; but in a few years even that won't be an issue for me.

And do you know what? I found that all this truely made my life easier, not harder. I don't worry about missing a payment becaue I don't have any. I don't have to worry about what creditors think because I don't borrow. If my car breaks down, I don't have to worry about how to pay for it...I will just pay for the repair from my emergency fund and replace the funds used a bit with each paycheck.

Life is a lot nicer and enjoyable without some banker's thumb pressing down on the back of your neck that's for certain.

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This month was a killer to me.

I found myself spending money on stuff that, while needed, irritated me because the stuff that I replaced (pots and pans) could have been avoided had my DF not use the dishwasher! I had to get stainless steel pots and pans to replace the pots I had bought 3 years ago. On top of that, I had to get an oil change and the balance of tires and clear some rust from my rear brakes. That was a cute $142.

Stuff always comes up though, and it doesn't make me broke, but it makes it difficult for me to stock up cash. The only way I can save 3-6 months of my net salary without living like I'm poor is getting a second job and saving those paychecks.

I will always advocate responsible credit use. If I can't pay for something by the next paycheck, I won't buy it, unless it's a true emergency, and even then I will sit down and plan out how I am going to deal with it so that there isn't much financial pain. But the key word is "responsible." If we were all responsible users of credit, none of us would be here (and in that sense, I'm kinda glad I was irresponsible; I do like it here... :D )

I will try to find a way to sock money away though...but it just seems that stuff always pops up. I told my DF that I cannot get a second dog. She wants one, but I'm adamant about not buying one now. The expense, the vet visits and shots, the toys, etc., etc., etc.,.

My other option is getting another job that will pay me more, but we all see how the economy is. Plus, I am fine (for now) where I'm at.

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Stuff always comes up though, and it doesn't make me broke, but it makes it difficult for me to stock up cash. The only way I can save 3-6 months of my net salary without living like I'm poor is getting a second job and saving those paychecks.

How much interest and fees do you pay on all those credit lines each month? If you paid all those off and closed them (getting back your secured deposits on at least one of them) could you get to 3-6 months cash on hand? Not immediately but I think you could.

If you had just $500 cash on hand, you would have been able to do your car maintenance and replace the pots...right? How about if you had $1000? Could you buffer yourself from most life events with a grand? I bet you could.

So start there. Cut up the cards so you can't use them. Stop your retirement deductions if you have any right now. Budget your monthly expenses. Especially food - treat it as fuel, not pleasure for now. Pay minimums on everything until you get $500 to $1000 cash in the bank, then don't touch it unless it is an emergency. I dunno about the pots/pans being an 'emergency' but I got my Wolfgang Puck SS set for $80 at Sam's Club a few months back.

Then start pounding out the credit cards starting with the smallest. I know some people say pay the one with the highest rate, but I don't advise that. Pay as much as you can to the smallest balance first so you get some instant feedback that you are accomplishing something. Then when you no longer have that payment roll that money into the next smallest account and keep rolling the snowball over to each account including cars until they are all paid off.

When all the debts except the house are paid off you take all that money that was going out to them and focus it on your 3-6 months cash fund. Which builds up very fast when you're plugging that much in each month. Then begin/restart your retirement funding and attack the house payment.

I won't kid around, this is not a quick plan, but it does work over time every time. Nor is it pleasant in the beginning...you must make a short term sacrifice in your fun factor to get this ball rolling if you're living the paycheck-to-paycheck game. But I've seen people making a total family income of less than $30,000 with two adults and two kids do this program and pay off all their debt (including their house), now they can afford to do the fun stuff with cash.

What you do is up to you. I'm just passing out the information. It's up to you to decide if you have had enough of the credit hamster-wheel or not.

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How much interest and fees do you pay on all those credit lines each month? If you paid all those off and closed them (getting back your secured deposits on at least one of them) could you get to 3-6 months cash on hand? Not immediately but I think you could.

If you had just $500 cash on hand, you would have been able to do your car maintenance and replace the pots...right? How about if you had $1000? Could you buffer yourself from most life events with a grand? I bet you could.

So start there. Cut up the cards so you can't use them. Stop your retirement deductions if you have any right now. Budget your monthly expenses. Especially food - treat it as fuel, not pleasure for now. Pay minimums on everything until you get $500 to $1000 cash in the bank, then don't touch it unless it is an emergency. I dunno about the pots/pans being an 'emergency' but I got my Wolfgang Puck SS set for $80 at Sam's Club a few months back.

Then start pounding out the credit cards starting with the smallest. I know some people say pay the one with the highest rate, but I don't advise that. Pay as much as you can to the smallest balance first so you get some instant feedback that you are accomplishing something. Then when you no longer have that payment roll that money into the next smallest account and keep rolling the snowball over to each account including cars until they are all paid off.

When all the debts except the house are paid off you take all that money that was going out to them and focus it on your 3-6 months cash fund. Which builds up very fast when you're plugging that much in each month. Then begin/restart your retirement funding and attack the house payment.

I won't kid around, this is not a quick plan, but it does work over time every time. Nor is it pleasant in the beginning...you must make a short term sacrifice in your fun factor to get this ball rolling if you're living the paycheck-to-paycheck game. But I've seen people making a total family income of less than $30,000 with two adults and two kids do this program and pay off all their debt (including their house), now they can afford to do the fun stuff with cash.

What you do is up to you. I'm just passing out the information. It's up to you to decide if you have had enough of the credit hamster-wheel or not.

Your advice is sound, as always.

I pay no interest...CCs are paid in full each and everytime. In almost a year since I have gotten credit, I have never paid interest to CCs, (only the car).

The pots had to be done because the non-stick pans we had were looking nasty and unhealthy, but DF was supposed to handwash those and she justs throws them in the dishwasher. Now I have to get stainless steel. (We rent and we don't pay for water, so it's all good with me... :D ). Macys had a nice columbus day sale and I got a cuisinart set that gave me 3 mixing bowls for free, plus a bread knife that I have to mail for.

I am trying to go back to the days of cash but I have to start with groceries. If I can go back to cash with groceries, then everything else is good.

As for stopping retirement deductions, that's not a hot idea. In fact I just increased my deductions to take advantage of the low-cost assets...when the economy rebounds, I'll have made back my losses and hopefully be up (from what the pundits tell me). I will use my cost-of-living raise to fund those increases until I'm at $15.5k, which will be in about 4-5 years (or maybe sooner). Social Security will be a fairytale by the time I can collect it, and I need to be sure my pension and 457b will be enough to carry me without working at Walmart.

I'm gonna shoot for $1k and see how long it takes me to get that. Stuff is just so rough right now.

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Stuff is just so rough right now.

No kidding. Yesterday when I went to get a couple half-gallons of ice cream at Winn Dixie for my daughter's upcoming 2nd birthday it was $4.49 each for the house brand. Blue Bell was $6.89 a half-gallon.

The clerk at the register said "You must really like ice cream to be spending $10 on it." That really made me pause and realize just how rough it *is* getting. All the more reason not to be giving any to a lender.

Incidentally, how many of those accounts of yours, even though you pay them off each month, carry annual fees? You may as well light a Jackson or two on fire for each account once a year to achieve the same effect. I see one listed is a secured line so they are holding some of your money there. Do they pay you interest for holding your cash on that account? Even if they do, the annual fee probably is 20x what they give you in interest.

14 accounts x average $30 annual fee = $420 annual

Gotta think about these things. They have.

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Incidentally, how many of those accounts of yours, even though you pay them off each month, carry annual fees? You may as well light a Jackson or two on fire for each account once a year to achieve the same effect.

Three...HSBC, Hooters and BOA. I don't get any interest for the BOA, but I rationalized that if I had that $2k in my pocket, it would have been gone. It's out of sight/out of mind and I know I'll get it back in between December and May. I may do my taxes expecting a refund by April 15th just so that it coincides with me getting the $2k, but I am not sure.

BOA I am hoping will give me a card with no AF because I've been good with them and from what I read primarily here and the other places, they pretty may hook me up with no AF. But assuming because of the economy that's not the case, $59+$36+$29 (HSBC, Hooters and BOA, respectively)=$124. You'd be amazed what I used to spend $150, $300 on....but I'll say it was the equivalent to taking my money and burning it.

I never wanted credit; I was happy without it. But I also wanted to own a house....and I hope within the next year I do that. I can't do that without having positive credit and I should be near 700+ hopefully by year's end or if not definitely by mid year. I'm not opening up any more cards and I'm trying to economize my cash...I have to now and have no choice. Things are not getting any cheaper in the PRNJ, I might have to seriously consider leaving while the getting is good.

Ultimately, I plan on coming out ahead...it's just going to take some terribly-long planning...but it's going to happen.

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Still I know what you mean, I've given lots of stamps out there when checking my po box , some people just need to buy 1 stamp or they don't have plastic. I think at least at night they should leave a few stamps out and a box where people can insert money. My son said they were having trouble locating the parts to repair the machines and that is why they go rid of them.

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Methuss, I appreciate your point about the 3-5 month nest egg. I like the way you express yourself, too, but I think you may have misread what I wrote.

I don't intend to go in to debt. I do intend to improve my credit score by using a card lightly and paying it off in full every month. It's a very different thing. (I haven't used credit cards in four or five years, at least not to build up debt. That wasn't my problem.)

But more to the point, I am concerned about how the recent credit crisis has changed the landscape for those of us who are going through or have recently gone through bankruptcy. And I'd like to know if anyone has recent specific observations to share that speak to that issue.

So I'll ask again for feedback -- from recent BK's seeking credit -- or from others of you in the know about the climate today. I think it's pretty tied to the topic of this post.

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I was at the Lowry Zoo in Tampa today and they had credit card swipers on the vending machines...to pay for your bottle of pop/water. Considering that there is a % fee on each sale and a minimum processing charge, about 37 cents of each bottle dispensed on one of these machines is going to the card processors.

It really is getting nuts.

I have been to that Zoo before.

I know it is really stupid now...They should have a boxing glove "POP" out and punch you in the mouth for doing that. And The creditors are not helping matters any by allowing this type of wreckless behavior with credit cards. So a $ bottle of soda costs you 2$ plus interest....SMART!!!!!:o

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This month was a killer to me.

On top of that, I had to get an oil change and the balance of tires and clear some rust from my rear brakes. That was a cute $142.

.

I am so glad I am a mechanic...I do all my own work, and I also do side work earning cash under the table. I have saved so many thousands of dollars over the years doing my own work. :)

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