10/26/2012 7:15 PM ET|
5 stupid 'solutions' to money woes
Some financial 'fixes' are smarter than others. Here are some common ways to get into trouble -- and how to get back out.
Woman using calculator on desk full of bills and statements © Sheer Photo, Inc/Photodisc/Getty Images
The title of my new e-book is "There Are No Dumb Questions About Money." No, seriously. Asking questions is the way we learn how to handle our finances, and the only dumb question is the one you don't ask.
There are, however, plenty of dumb answers to money questions, as well as lots of stupid solutions to money problems. Desperate people looking for a quick fix often wind up in far worse holes than when they started (thanks, sometimes, to the unhelpful ministrations of whole industries dedicated to taking advantage of them).
If you have got a money problem, here are some of the stupidest "solutions" to avoid, along with some alternatives.
Borrowing from a payday lender
Payday loans seem convenient. You don't have to have good credit -- you just have to be employed or getting regular benefit checks, from Social Security, unemployment or other sources.
But you'll pay at least $15 for every $100 you borrow through a payday advance company, according to the Center for Responsible Lending. That fee for a two-week loan translates into an annual interest rate of about 400%. Worse, most borrowers who take out these risky loans come back again and again, the center's studies found, either to roll over their existing loan because they can't pay it off or to borrow more. Either way, they rack up more fees.
Payday lending doesn't solve the underlying problem, which is often poor money management. Many people who start taking out payday loans just keep borrowing until they default. Then what started as a quick fix turns into a nightmare of collection calls and, sometimes, bankruptcy court.
A payday loan isn't a reasonable solution to either a temporary crisis or a chronic shortage of funds. Your best bet is to avoid the need for an emergency loan by building up a small cushion, even if it's just $500. Other alternatives:
- Get some budgeting help. If you're chronically short of cash, a budgeting counselor can help you track where the money goes so you can get expenses in line with your income. The National Foundation for Credit Counseling can help.
- Turn to your community. Food banks, clothing banks and other community resources can help you cover the necessities when you're broke. If you're poor, you may qualify for government help with groceries, housing costs, utilities and child care (check with Benefits.gov).
- Sell something. Raise money fast with a yard sale, an online auction or an online classified ad.
- Ask your employer for an advance. Some companies will let you tap your next paycheck for free or a small fee.
- Ask a family member or friend for help. Even if you're charged interest, you'll pay far less than you would to a payday lender.
- Take a cash advance from a credit card. If you have a credit card, you can tap it for emergency cash. The interest rates are high -- often more than 20% -- but better than those for a payday loan.
Buying a car from a 'buy here, pay here' lot
Lending to people with bad credit got a lot less popular after the financial crisis. While credit standards have eased somewhat, many people still have bad or nonexistent credit and have trouble getting a loan.
"Buy here, pay here" lots have sprung up to take advantage of the situation. Dealers mark up the prices of older, high-mileage cars to sell to people with few other options. Financing comes with high interest rates, usually around 24%, and borrowers are often required to make their monthly payments in person (the better to repossess the car, if necessary). A single missed payment leads to repossession, so the dealer can sell the car again.
If your hoopty finally bites the dust and your credit is lousy, you don't have many good options. A few charities try to hook up the working poor with wheels, among them Ways to Work, 1-800-Charity-Cars and Cars 4 Causes, but there are typically far more applicants than available cars, according to an investigation last year by the Los Angeles Times.
If you can scrape together $2,000 or $3,000 in cash, you may be able to get a decent car deal from a private seller via eBay or Craigslist, advises Edmunds.com, a car research site. Or consider applying for a car loan from a local credit union. These member-owned organizations typically have better rates and more flexible lending terms than many mainstream banks do.
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Federal government hits 3: borrow from payday lender and borrowing from China are equivalent; raiding retirement is what the feds have done to social security for years; living in denial with 16 Trillion in debt and wanting ot increase spending. The feds also have the ability to work in collusion with the federal reserve to 'print more money', which is all quantitative easing is, which will lead to hyper-inflation once the artificially depressed interest rates are let loose.
The way out: fiscal discpiline, major overhaul to the tax system (a uniform VAT without any income tax is one way), lower corporate and business tax to get rid of the incentive to off-shore (cheap labor isn't the reason since it's offset by increased shipping costs and increased costs due to poor quality; it's primarily the corporate tax policy pushing jobs out of the US, though union wages and benefit packages do factor in, they are just not the dominant factor), reduce regulations that drive a huge infrastructure while providing little or no benefit to the public, and serious penalties for corporations that knowingly violate sensical laws and regulations.
Getting your individual house in order is a must but doesn't really do much good if you don't work to constrain the government to valid constitutional limits and activities and hold all elected individuals responsible for their actions and inaction (i.e. allowing ridiculous legislation to go through without dissent; arbitrarily not enforcing laws such as immigration laws, etc).
These articles, while sounding good on the surface, are really just a waste of time. People don't change their basic personalities, and people who are used to living in denial as a way of coping are not going to change that way of doing things just because they read an article or two. The only people who really get a charge out of these articles are the people who are doing the right things in the first place and want validation of how much smarter and more moral they are than the rest of those losers. It makes them feel all warm and fuzzy inside and it's reassuring, but it won't help those who truly need it. The only thing that's going to change the delusional and entitlement mentality people is if they are forced to by extremely painful consequences like homelessness or hunger. And even then as soon as they get back on their feet they'll be at it again.
These people don't care about tomorrow or anybody else. They want what they want, and they are going to have it. I know people who have lived this way for their entire life, and they just find ways to get by with little or no consequence. They know someone or something will always bail them out ie bankruptcy, and they see nothing wrong with what they are doing. They just don't care, and think it's funny the way others follow the rules and yet they get the same benefits by doing just enough. They think honest, hardworking people are suckers.
Stop giving them credit and listening to their sob stories. Let them truly suffer the consequences of their behavior. It's not mean. It's fair.
The author didn't include the biggest one: Allowing the (Federal or State or Local) government to borrow on your behalf.
After I lost my job, we had to live on my retirement savings. Unemployment is just not enough to make it. It took me over a year to find a new job. We would have lost everything if I had not cashed my 401K out.
I have used them...I don't anymore...and they have become illegal in many states...maybe a few class action suits will put them out of business for good...they are the worst possible option to get a bill paid on time or in an emergency...I do make good money and was able to handle it but it became habitual and was stupid...we live and learn.
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You can give your car the care it needs without draining your bank account if you follow this advice.