As the cost of everything continues to rise, many people are finding themselves running out funds before their next payday. Some are turning to payday loans or cash advance stores just to make ends meet. However, many people are not aware of the total cost of payday loans. Many payday borrowers don’t understand that a $15 or $20 fee for borrowing $100 is actually quite expensive. It means the Annual Percentage Rate (APR) is actually around 400%! Not many people would accept this APR on a credit card, but accept it willingly when taking out a payday loan. One reason payday lending companies charge such a high APR is because they don’t do credit checks and they are assuming all the risk in the loan. Many borrowers have poor credit and have few options for borrowing.
Payday loans can also be called: cash advance loans, check advance loans, post-dated check loans or deferred deposit loans. Whatever they are called, they work the same way. A consumer writes a check or completes an electronic transfer form for the amount of the loan plus the fees. The payday lender then gives the consumer the loan amount minus the fees. The fee can be based on a percentage of the value of the check or a set amount for the increments of money borrowed (for example, $20 for every $100 borrowed). The check is then deposited or electronically submitted for payment on the consumer’s next payday. If the consumer realizes that the money won’t be available on the payday they can “roll over” or extend the loan for an additional fee.
“Rolling over” or extending the loan is where most people get in trouble. An individual who borrows the money when they are in desperate need and pays off the loan on the first payday will keep out of debt problems. But someone who extends the loan several times will certainly end up with bigger debt problems than they started with. Certain lenders will only allow a consumer to extend their loan up to the state limit or 4 times whichever is less. If an individual borrows $100 with a $20 fee and then extends the loan 4 times, by the time the loan is paid they have paid $100 in fees, just to borrow $100.
Remember, in the lending/credit world, fees and interest are all considered part of the APR, which is the total cost of the loan. Anyone considering a payday loan should understand and research all the conditions of the loan. Consumers can get more information on making wise choices about payday loans from the FTC at www.ftc.gov.
Financial scams tend to pop up more around the holidays. Consumers are busy, buying lots of goods and more than willing to shell out extra cash for those in need. While generosity is the theme of the season, it’s vital consumers exhibit caution when making any purchase or donating to a charity. To help you stay alert and financially secure, we’ve compiled a list outlining the top holiday scams:
- Fake Charities: Fake charities are among the most popular holiday scams, soliciting consumers over the phone, e-mail and through direct mail. To avoid these scams, only donate money to charities you know and trust. If a new charity piques your interest, be sure to verify its existence on Charity Navigator or the BBB Wise Giving Alliance. If you can’t locate the charity in question, use the online search tools to find a different charity with a similar mission.
- Fraudulent Travel Packages: Travel costs can skyrocket during the holidays, steering many consumers online in search of deals. Take time to research your options, and again, only purchase travel packages from reputable companies you know and trust. Fake travel sites may offer amazing deals on vacation rentals or hotels to lure you into providing personal information that can be used to steal your identity or tap your bank account. This practice is known as “phishing.” Fake travel sites may require customers to pay for all accommodations upfront, and they may not provide a phone number or e-mail address for customer support.
- Fake Contest Alerts: Many scammers use telemarketing to tempt consumers with prizes from fake contests. Be very skeptical if you get a call out of the blue about winning a big ticket item like a luxury vacation. Don’t put down a deposit or provide the caller with any personal data. The call is likely a scam, especially if you can’t recall entering the contest. Similarly, scammers may utilize these same techniques to solicit personal information with cell phone text messages, asking the recipient to call a toll-free number. This is referred to as “smishing.” Be sure to alert children, seniors and others who may not be cell phone savvy about these types of scams.
- Naming a Star: It may sound appealing to have your loved one’s name immortalized in the night sky, but it’s not really going to happen. You are simply paying for a plaque – not an actual star. These types of services have been around for a while, but consumers still fall into the trap. The truth is, the International Astronomical Union is the only organization designated to name stars, and it does not open the opportunity up to the public. You would be much better off making a gift or spending your money in another manner.
Learn more about protecting yourself from scams at the holidays and throughout the year here, here, and here.
When the housing bubble burst in 2007, a slew of scam artists started targeting those who were most vulnerable – homeowners struggling to make their mortgage payments and facing foreclosure. It quickly became difficult to sort the real help from false hopes. Consumers around the country were scammed out of thousands of dollars, and even their homes.
It’s important to know that legitimate help is widely available. The U.S. Department of Housing and Urban Development (HUD) has approved nonprofit housing counseling agencies nationwide to provide foreclosure prevention services free of charge. Click here to find a HUD-approved agency in your state. You can also call the HOPE NOW national hotline for guidance 24/7: 1 (888) 995-HOPE.
To help you better decipher legitimate assistance from rip-offs, we’ve compiled six signs of housing scams:
- Fee-Based Foreclosure Prevention Counseling – You should never have to pay any upfront fees for foreclosure prevention counseling. Individuals who request fees typically pocket the cash and disappear.
- Loan Modification Guarantees – A HUD-approved housing counselor will never guarantee that your home loan can be modified. There are numerous factors that impact the likelihood of a modification, and the lender – not the housing assistance program – has the ultimate say. Legitimate housing counselors will guide you through the loan modification process, advocate on your behalf and explain your options.
- E-mail and Phone Solicitations for Financial Information – Housing counselors do not initially solicit or request personal financial information over the phone or e-mail. While ongoing support and communication can be conducted by phone or e-mail, the initial documentation needed for the loan modification process should be collected and signed in person. In certain situations, especially when proximity to a housing counseling agency is a factor, documentation may be transferred through mail and/or fax.
- Advice to Stop Making Mortgage Payments – If you are currently paying your mortgage, a legitimate housing counseling agency will not tell you stop making payments or transfer payments to the agency in lieu of the lender. If you are unable to meet your monthly mortgage payments, you should contact your lender and a HUD-approved housing counseling agency as soon as possible to determine your options.
- Pressure to Sign Paperwork – A scammer may pressure you to rush through paperwork so you aren’t able to read it thoroughly. Many homeowners have fallen victim to “bait and switch” schemes in which a crook asks them to sign loan modification paperwork, yet it’s actually the deed to their house. Additionally, a legitimate counselor will never offer to fill out the paperwork for you.
- Leaseback Schemes – Be suspicious of anyone asking you to engage in a rent-to-own program. Some scammers may ask you to surrender the title to your home and then stay in the home as a renter. They promise that they will allow you to buy back the home when you recover financially. These scammers typically have no intention of selling you the home, and instead evict you and your family or require exorbitant rent payments.
Take Charge America is HUD-certified to provide free foreclosure prevention counseling, as well as pre-purchase and reverse mortgage counseling. Click here to learn more about our housing counseling services
It’s that time of year, folks across the country are itching for a much-anticipated break from school and work. It’s also the time when eager spring breakers put down their guard and fall victim to travel scams.
March is National Consumer Protection Month, a perfect occasion to review tips for fending off swindlers and ensuring your spring break is carefree.
- If it sounds too good to be true, it probably is. Be wary of bargains offering extremely steep discounts. There are many travel agencies that entice travelers with “too good to be true” travel packages, only to charge hidden fees or inflate costs elsewhere. Make sure you fully understand the terms before committing.
- Do your homework. Before you buy a vacation package, make sure you’re booking with a reputable company. Good place to start your search is with the Better Business Bureau. You can also conduct your own research. Check out discount sites like Kayak or Expedia, and inquire directly with airlines and hotels to ensure you’re getting the best deal.
- Get it in writing – and read the fine print. Read your contract closely to ensure you understand exactly what you’re buying.
- Be on the lookout for any surprise costs such as “day use fees,” “resort fees” or additional charges for airline seat assignments.
- Verify that your “all-inclusive” package really includes all costs – things like ground transportation, meals, drinks, port fees, taxes and gratuities.
- Request copies of cancellation and refund policies. Be especially wary of clauses allowing your travel agency to swap your hotel at the last minute for another “comparable” one.
- Make sure all verbal agreements are included in your written contract.
- Pay by credit card. In most cases, it’s best to pay with cash rather than accruing credit-card debt. In the case of travel, however, many creditors offer protection against travel scams. Federal law also allows you to dispute fraudulent charges. If your travel agency insists on payment by cash, check or money order, take your business elsewhere. And remember, if you can’t afford to pay off your credit card bill at the end of the month, you probably can’t afford the vacation.
- Consider travel insurance. This type of insurance could be valuable if your schedule isn’t flexible, or you anticipate possible disruption in your plans. Be sure that it covers trip cancelation by you or your tour operator.
Lenders require a co-signer when a consumer doesn’t qualify for a loan, either due to a lack of credit history or poor credit history. A co-signer is an individual who meets the loan requirements and agrees to cover the loan payments if the borrower requesting the loan is unable to make them.
The decision to co-sign a loan – or to ask a loved one to co-sign for you – shouldn’t be taken lightly. You must carefully weigh the pros and cons and take an honest assessment of your ability to pay back the loan in the future.
According to the Federal Trade Commission, numerous lender studies show as many as three out of four co-signers are ultimately asked to repay the loan. Co-signers who fail to examine the fine print may be stunned when they’re stuck with the bill. Not only can this cause a serious financial hit, it can strain personal relationships.
Prior to co-signing any agreements, consumers need to educate themselves on the facts and potential consequences.
Did you know?
- Once you co-sign a loan, there’s no going back. Co-signers cannot pull out of the loan midway through the term. They must take unexpected events into account, such as divorce or job loss, before signing.
- Co-signing a loan for someone else may prevent you from obtaining credit for yourself. Lenders consider co-signed loans as one of the borrower’s credit obligations, even if they aren’t making the payments. The liability can prevent co-signers from qualifying for another loan or credit card.
- If you co-sign a loan, you may be required to pay more than the loan amount. If a borrower skips one or more payments, late fees and collection costs can also be forwarded to the co-signer. Additionally, the co-signer may need to pay attorney fees if legal action is required.
- Lenders can garnish the wages of co-signers. If the borrower and co-signer cannot repay a loan, the lender can sue the co-signer to garnish wages and even property in order to satisfy the repayment.
- Co-signers can lose their property if the loan defaults. If a co-signer secures a loan with property, such as a home or vehicle, the co-signer risks losing those items if he/she is unable to make payments when required.
If you do choose to co-sign a loan for a family member or friend, there are steps you can take to limit potential problems. Keep copies of all paperwork on hand in case disputes arise, and ask the lender to notify you in writing if the borrower ever skips a payment. This move can prevent a trail of extra fees.
Co-signer rights can vary state-to-state, so make sure you research what you’re entitled to ahead of time, and what you’re not.
One of the most effective tools for managing your personal finances is also the most overlooked. It’s the personal budget, which simply measures the amount of money coming in and the amount going out.
At Take Charge America, we have found that individuals who maintain regular budgets are more likely to recognize and reverse bad spending habits than those who don’t. In fact, it’s not uncommon for first-time budgeters to save hundreds of dollars within the first month or two. The budgeting process makes consumers much more aware of the smaller purchases that accumulate throughout the month. For example, eating lunch out twice a week may seem harmless, yet if each lunch costs $10, the monthly total is $80. When you add in taxes, tips, gas money and parking, the total jumps near $100. Those funds could easily cover a cable bill or credit card payment, making a homemade lunch seem much more appealing.
A basic worksheet can help you identify similar opportunities to save in your own budget. Here are five tips to get started:
- Establish Short and Long-Term Goals – Everyone has different financial goals that can impact their budgets in different ways. Are you trying to pay off debt? Are you saving for college? Do want to travel through Europe? Your personal budget should provide avenues to accomplish these goals, even if you need to start with baby steps.
- Put it on Paper – Budgeting worksheets are easy to create yourself, or you can download templates online for free. To create your own, divide a document or spreadsheet into two vertical columns. In one column, make a list of your monthly expenses and the amount you expect to spend on each. In the second column, record the actual costs as they happen. At the end of the month, compare the two columns and adjust your spending as needed.
- Be Realistic – Your budget should incorporate extra costs outside of your regular expenses, such as bills, groceries and transportation. The most effective budgets paint a realistic picture of spending habits, and most of us need a little wiggle room for entertainment, fitness or children’s activities. Just be sure to stop spending once you reach your allotted limit. Budgets are only useful if they’re followed.
- Don’t Forget to Save – A budget isn’t only about tracking expenses; it’s about saving too. Make it a goal to save at least 15 to 20% of your total income each month. While this may not be feasible every month, try to set aside what you can. Even $25 a month is a great start. The extra cash cushion can help you cover costs from unexpected events, such as a flat tire or computer crash, without going further into debt.
- Evaluate Your Status Monthly – Your budget will need to be adjusted as your income and expenses fluctuate. Evaluate your financial situation at the end of each month. Have you noticed any patterns – good or bad? Where can you trim expenses? Every budget evaluation can get you closer to achieving your financial goals.
Equity is the difference between a home’s fair market value and the outstanding mortgage balance. When the housing market crashed in the fall of 2007 and into 2008, many homeowners across the nation lost much, if not all, of the equity in their homes because the fair market value of their property’s dropped significantly.
Homeowners who do have equity in their homes have the option to borrow money against the equity they have built up with a loan or line of credit. In both cases, the house serves as collateral, which means the creditor may seize the home and sell it if the homeowner can no longer make the payments. Tapping into your home equity can be detrimental if you enter into the contract without fully understanding the repercussions.
While risky, there are some instances when a home equity loan makes good financial sense, especially if you have a large amount of equity. To help you sort out the confusion, we’ve provided some common home equity do’s and don’ts:
- DON’T use home equity to purchase unnecessary luxuries. Home equity shouldn’t be used for luxury items like a fancy car, boat, big screen TV or a vacation. The fleeting moments of joy aren’t worth putting your family’s security at risk.
- DO use home equity for improvements or additions that add value to your home. Ideally, home equity is an asset and should be used for other assets. A home equity loan can be effective if it’s used for home improvements that maintain or increase the resale value of the home. It may also be appropriate to use home equity to purchase income-producing property or an investment that’s expected to generate a higher return than the cost of the loan.
- DON’T tap home equity if you plan to sell in the near future. In order to sell your home, all debts on the house need to be paid off. It could be a poor move to tap home equity for improvements if you aren’t able to pay off the loan or line of credit prior to your desired sell date.
- DO consider home equity to cover expenses from unexpected events. If you do not have emergency savings, your home equity can provide financial relief related to unexpected events, such as an injury preventing you from working. However, it’s ideal to have an emergency fund with at least three to six months worth of living expenses in a savings account. If you don’t have an emergency fund, we suggest you start making regular contributions now. Many consumers start with a $25 contribution each month, and then increase their contributions as their income allows it.
- DON’T take out excessive equity. If you decide to use your home equity, don’t take out more money than absolutely necessary. This will help eliminate the temptation to spend the funds on unnecessary luxuries. Also keep in mind that a home equity loan or line of credit decreases the amount of equity you have in your home. If you have taken out too much equity and the real estate market drops, you can end up losing all the equity in your home. Further, if you have negative equity, the lender may demand immediate payment of the loan.
- DO consider home equity for use in retirement. Retired homeowners who have paid off their mortgage can sell their home and cash out the equity by downsizing. Further, homeowners 62 and older have the option of reverse mortgages, which basically means the bank will give your equity back to you while you’re still living in it. The homeowner does not need to repay the mortgage for as long as he/she lives in that house. Learn more about reverse mortgages here.
Is marriage in your near future? Before you say “I do,” you need to make sure you’re financially prepared for this major milestone. We have outlined six financial steps you and your partner need to take before walking down the aisle.
- Open the Doors of Communication – Have you already had the big “money talk”? Financial discussions now can prevent many arguments and disruptions in the future. During your initial “money talk,” we suggest swapping and analyzing credit reports. You can obtain a free credit report each year from AnnualCreditReport.com. And remember, one talk isn’t enough. Schedule regular discussions about your financial goals, priorities and action plans.
- Create a New Budget – How will marriage impact your monthly budget? Once your goals and priorities have been established, you need to create a budget that takes all income and debts into account. You also need to determine how to pay bills and through which bank accounts. Will you have a joint account, separate accounts, or a mix? Which bank accounts will be designated for which types of purchases?
- Pay Down High Interest Debt – Debt you have acquired yourself doesn’t transfer to a spouse upon marriage. In order to start your marriage off on the best financial foot, focus on paying down or paying off your high interest debt first. Doing so will allow you and your partner to reach savings goals faster and with less friction.
- Plan Childcare Costs – If you plan to have children or already have children, you need to decide how child rearing costs will be handled, from medical bills to child care to college tuition. A long-term savings plan can be crucial to ensuring the entire family’s financial security. You may also want to look into a 529 Plan to cover future college costs.
- Establish Retirement Accounts – It’s never too early to start saving for retirement. In fact, the earlier the better. If your employer offers a 401(k) package, be sure to enroll and take advantage of the full match. IRAs are also great options, especially for those who don’t have access to a 401(k).
- Consider Legal Protection – Prenuptial agreements, or prenups, are legal contracts some couples enter into before marriage. While the content varies, financial matters are commonly spelled out in the event of a divorce. If you, your partner or both possess significant wealth or debts, it’s wise to have a written agreement. Most young couples that haven’t acquired significant wealth don’t need a prenup and are better off saving the money. A prenup can be important for second marriages when one person wants to make sure the bulk of his or her estate goes to children from an earlier marriage.
Could you use some extra cash? Most of us can, especially with the challenges of high gas prices, a sluggish job market and salary freezes. To help you free up more cash this month, we’ve provided 10 simple ways you can save $50.
- Cheap Gas: Visit sites like gasbuddy.com to find the lowest gas prices in your neighborhood. Be sure to check out the mobile app, too, when you’re on the road and need to fill up.
- Skip the Drinks: Stop ordering drinks when you go out. Skip the margarita or Diet Coke in favor of water with lemon – you’ll be glad when it’s time to pay the tab.
- Shop Off-Season: Instead of paying top-dollar for the latest fashions, browse the racks at discount stores like Ross, Marshall’s and TJ Maxx. They stock high-quality, brand-name clothing and shoes – at a significantly reduced price.
- Negotiate for Damaged Goods: Many stores will give you a 20-percent discount or more for slightly damaged items – such as a missing button or barely-visible spot – you just have to ask.
- Price Match: If your neighborhood retailer offers price-matching, take advantage! If nothing else, simply price-match your produce at Walmart for quick and easy savings. You can also save on printer ink, copy paper and other office supplies by price-matching at stores like Staples.
- Buy Store Brands: Shop generic and enjoy identical products at a considerably lower cost.
- Utility Bills: Consider asking your utility company to charge you a flat rate each month to balance out the seasonal highs and lows. You’ll notice the benefits in the hot summer and cold winter months, when energy usage is highest.
- Evaluate your Cable: If you’re paying for channels you never watch, consider a lower-priced cable package. If you’re intent on shaving monthly costs, you may even consider canceling cable altogether in favor of Internet TV providers.
- Cancel Phone Features: If your cell is your primary phone, get rid of the fancy features on your land-line. You may not need call-waiting, three-way calling, caller ID or even voicemail. Or, consider getting rid of your landline altogether.
- Spending Log: Write down every purchase to keep a log of your spending. This may seem tedious, but you’ll be surprised to see where your money goes – and you’ll likely think twice before making unnecessary purchases.
Homeownership is considered a cornerstone of the much-desired American dream. However, we each embark on a path toward fulfilling this dream at different rates, surrounded by different circumstances. If we get caught up in chasing a dream that’s not within our current means, then we run the risk of serious financial hardships in all parts of our lives.
You may have heard of the phrase “buying too much house.” This refers to consumers who purchase a home that they cannot afford to maintain. It’s important to remember that a mortgage only represents a portion of the costs associated with homeownership. You also need to account for regular upkeep and maintenance, utility costs, insurance, taxes and association dues.
For most Americans, a home purchase will be their largest investment. It’s central to their safety, security and livelihood. In order to help protect this investment, we’ve compiled five tips for reducing home-related costs that could save you thousands of dollars.
- Be Mindful of Utilities – The larger the house, the higher the utility costs. When house hunting, take mental notes of the room size, window placement and locations of the AC and heating units. Would it be difficult to heat or cool the entire home? If you’re already established, you can reduce your utility bills by using energy efficient light bulbs, sealing cracks around windows and doors, and unplugging electronics that aren’t in use, such as cell phone chargers. To reduce water costs, only run the dishwasher or clothes washer when you have a full load. You can also reduce outside watering costs by replacing grass or plants with rock and gravel gardens.
- Get a Roommate – Getting a roommate is a quick way to reduce your rent/mortgage and utility costs. If you place an ad for a roommate, check their credit report and perform a background check. The fee associated with these reports will be well worth the peace of mind and potential hassles in the long run. In addition, a roommate should always sign a lease. This protects both parties.
- Refinance – If you’re financially stable, have a good credit rating and have at least 20% equity in your home, then you should consider refinancing. This can reduce monthly mortgage payments, and in some cases, eliminate mortgage insurance. The amount of money you can save depends on your total refinancing costs, whether you plan to sell your home in the near future and the effects of refinancing on your taxes. Talk with a lender or credit counselor before making this move.
- Barter for Services – Maintenance and upkeep can be quite expensive. Consider bartering for these types of services with your own time, talent and experience. For instance, you can trade babysitting or yard work for plumbing. You can also barter house cleaning for house painting. Use your imagination. What do you need? How can you benefit others?
- Sell & Downsize – If you are already suffering hardships from “too much house” or perhaps the kids have moved out, it may be time to reevaluate your housing needs as opposed to your housing wants. Do you need a pool? Do you need two guest rooms or a separate office? Is it easy to maintain the yard? If not, examine the current real estate market to determine whether it’s the right time to sell and downsize. You could use the profit from a home sale to pay off debts or reinvest into a savings or retirement account.