Wisdom of Rich Dad

From time to time a person can come up a little short on cash before their next paycheck is due to come in. One solution to this is a payday loan.

There are several different places that offer payday loans. It works somewhat like a cash advance only it comes through a different business rather than through your employer. These are specialized businesses set up to give you loans based on the fact that you are going to receive another pay check.

Some are based on the Internet, others are businesses that you walk in to and do business with face to face. The money that they offer can be used anywhere from one to four weeks.

These companies may seem like an easy way to get rid of a bounced check, avoid a late payment, or even help yourself out of a bad credit situation. Many of them will even give you a loan if you have bad credit, no credit at all, or even if you have claimed bankruptcy. As long as you have an income and can prove it they will likely give you a short-term loan.

The biggest problem with these loans is that they have a very high interest rate. Their excuse is that it is because you are borrowing the money for a very short time. The average rate of these loans is usually 300% APR. Because of this you will actually end up owing more in interest than what you borrowed in the first place. Many people will end up having to extend the loan, which will cause them to go more in to debt than they were when they went to the loan company.

When you go to the loan company to get the loan you show them proof of employment and then write them a postdated check for the amount that you are borrowing plus a fee. This fee is a lender fee but it does not include the interest rate. The fee really isn’t that high but the interest rate will be. If you don’t pay the interest rate the loan company will begin calling you or your place of employment to collect on the outstanding money owed.

If you need money and need it fast there are much better ways to go about it. This way may very well get you in a bind later on. The first way is to get a credit union loan. Many credit unions offer small loans much the same way as the payday loan companies do. There is one big difference though, the credit union loans will only charge about 15% APR as compared to 300% of the short-term payday loan companies.

This, of course, makes them at least possible to pay off, unlike the short-term payday loan. If you all ready have an account with the credit union you have the option to borrow from your own account. If you do this you have an even lower APR rate. You even earn dividends back on your savings when you pay back the loan if you do it this way.

Another way to avoid going to a payday loan company is by using a credit card advance. This means taking money out of your credit card and paying it back later. The APR is a little higher than with the credit union solution but still much less than with the payday loan company. The interest rate here would be about 20-25%.

This option is something that you probably only want to do if you have a good credit score so that you don’t make your credit score look bad. Especially if you think that you might not be able to pay it all back by your next payday.

You can also avoid going to payday loan companies by using resources that are all ready available to you. Many banks have overdraft protection available to their patrons. This means that if you write a check without funds in the checking account the bank will give you an automatic loan for the amount of the check to cover it. Then you pay back this loan over time.

It may also be just as effective to talk to the people where you owe the money. They may be very willing to cut you some slack and take partial payments on what you owe or give you a grace period. Many places can be very flexible.

While payday lenders can be a very convenient way to get money the huge interest rate and the automatic permission that you give them to contact you and your employer when you sign the papers for the loan. This is an instance where the end may not justify the means.

In today’s economic conditions, more and more people are swimming in debt.  At last check the average American household is carrying over $8,000 in credit card debt. 

You may be one of those people carrying the debt however you are still entitled to some dignity in how you repay your debts.  In other words you have rights and you cannot and should not be pressured into the manner in which you repay your debts.  The Fair Debt Collection Practices Act(FDCPA) is what gives you these rights.  If you are in debt and are being called by creditors then keep reading to make sure your rights are not being violated.

Did you know?

The FDCPA was created to counteract the abusive practices of collection agencies.

The FDCPA applies to all types of debt incurred by a household including mortgages, auto loans, credit cards and even retail store cards.

The FDCPA applies only to 3^rd party collection agencies.  For example if you have a huge medical expense and someone from the hospital calls you regarding repayment, that is not covered under this act.  If they send this to a collection agency or law firm for collection then this act goes into effect.  By the way it is very rare you would get abusive treatment directly from a store or credit card company because they want to keep you as a customer.

What can’t they do?

They cannot contact any 3^rd party about your debt.  They can’t call your cousin, mother, father, neighbor or anyone else.

They can’t make idle threats to intimidate you.  For example they can’t say we are going to repossess the items you purchased unless they actually intend to do it.

They can only call you during reasonable contact hours.  Those hours are between 8:00 AM and 9:00 PM.  They also cannot continuously call your phone number over and over.

They can’t call you at work unless you give them permission.

They can’t insult you or use any type of profanity, or racial or ethnic slurs.  So calling you cheap, lazy or a bum is out of the question.

They can’t ask for a post dated check and threaten you if it bounces.  Well my question is why would you want a post-dated check anyway?  If I’m in debt I don’t like the odds that the post dated check will clear.

They can’t charge you any excessive collection fees.  This has always puzzled me about debt repayments.  If I can’t pay the original bill how is adding fees and penalties going to allow me to pay it off any faster

They can’t lie to you by pretending to be something they are not, even though we will often lie to them by saying I’m not home right now when I am the one they are talking to.  They can’t pretend to be a lawyer or a court official or any type of misrepresentation.  They can’t use any type of documents that look like they are official court documents.  They also can’t pretend to be taking a survey to get information about you.

Finally they can’t threaten to have you arrested if you don’t pay the debt.  By the way I don’t know how you can repay if you are in jail.

So those are your rights, know and use them if you must.  By the way companies face serious penalties and legal action if they violate these rules.   So if you are in debt and are working to repay them don’t be afraid to enforce your rights if they are being violated.

Every day, tens of thousands of individuals up to their necks in debt emotionally make the wrong decision. In pure desperation, they feel as though they can’t take another month of the debt. Throwing away their biggest ally (brutal rationality), they decide to “just do something.”

“Just do something” is the worst financial advice you can take. Every step of your financial journey should be founded on cautious, rational analysis. The situation won’t change regardless of how we feel about it. Emotions don’t change reality.

Listed below are a collection of actions that many seemingly overwhelmed individuals take. Make sure to tread carefully — a slip up can literally set you back years.  Below are some of the top “debt reduction” mistakes often made:

1. Getting “Debt Consolidation” Loans.

Debt consolidation is extremely popular in a lot of circles for a reason: most people who encourage you to “consolidate” your debt will make money if you do. Basically, a debt consolidation is when someone agrees to “consolidate” all of your debt into a new debt with lower interest rates. The only catch is that they’ll force you to stay in debt longer, and you’ll pay more money in the long run. So much for helpful advice.

The only time a debt consolidation is a “good” choice is if you simply cannot pay current interest rates. This is rarely, rarely, rarely ever true. Chances are, there’s a better way to pay the payments than a consolidation.

Getting a debt consolidation is basically a level of surrender, meaning you’ll be paying more money over a longer period of time. Remember, debt consolidation is also a type of loan — in other words, you’re literally fighting fire with gasoline. Not a good idea.

2. Trying “Debt Elimination” Scams.

If someone offers to “eliminate” your debt without analyzing your situation, just run away. It’s a scam, and they are literally out to get you. There really isn’t anything more to say. The hard truth is that there’s no way to “eliminate” your debt without finding ways to make more or save more money.

3. Closing Credit Card Accounts.

One of the biggest mistakes sounds like it makes sense. Closing a credit account sounds like one is taking control, telling the debtors “no more debt” and is taking a step in the right direction. Unfortunately, it can hurt your credit rating.

By closing a credit account, creditors see that you’re moving away from debt and can’t handle the “temptation” — bad sign. If you feel the need to live without credit, just shred your cards — but keep the accounts open for the sake of your credit score.

4. Making Only Minimum Payments.

Minimum payments are your enemy. The entire reason companies are willing to loan you money is that they’ll be making more. They’re literally selling money for more than it’s worth. The way they make money is through you not paying off your debt as soon as you get it.

There’s also a reason the minimum-payment requirement is so low: the lower it is the longer you’ll be in debt. The longer you’ll be in debt, the more they can charge you. Don’t pay the minimum — make up your own minimum and pay that instead. Shoot for triple the minimum payment, at the very least. Otherwise, you’ll be in debt prison for years longer.

Conclusion

Financial planning is the crux of financial security and freedom. If you want to find a comfortable lifestyle, then it can’t be overstated how much you need to master the basics of financial planning. Without a clear, concise plan for how you are going to manage your money, your chances are slim of ever achieving your goals.

NEW YORK (CNNMoney.com) — Rising unemployment is pushing strapped U.S. borrowers over the edge, with delinquencies and balances on delinquent credit cards surging — that’s according to an industry report. Here’s your step-by-step guide on what to do if you can’t afford your credit card payments.

1. Contact your lender

Let’s say you’ve lost your job, or are looking at a steep medical bill, and worried you won’t be able to make your credit card payment.

Make sure you call your lender and explain the situation. The sooner you contact them, the more willing they may be to work with you.

More and more credit card companies are willing to negotiate. Realize that they’re not being charitable — they’re just trying to get what they can out of you.

So, what can you ask for? If you can make some sort of monthly payment, ask your issuer to lower your rate and possibly waive your fees. Also ask to work out a payment plan.

If the first person you speak with can’t help lower your rate or make adjustments to your account, ask to speak with a supervisor. Persistence may be necessary to find the person who can or will help you.

Document all conversations, including the name and title of the person you spoke with, date, time and results.

Go to helpwithmycredit.org — a Web site operated by credit card companies for more information on dealing with debt issues.

2. Get your debt forgiven

Increasingly, credit card issuers are accepting dimes, if not pennies, on the dollar as payment in full. But if you’re striving to get a debt forgiven, don’t expect a sweetheart deal.

Generally you have to meet certain criteria. For example, most cardholders have to be delinquent for at least 90 days and — usually — your credit report needs to show that missing payments isn’t a common occurrence. But that doesn’t mean that once your debt is settled, there are no consequences.

Closing an account due to settlement is bad for your credit score and will affect your score for several years. If the forgiven debt is more than $600, you must pay income taxes on that amount.

If you’re looking for guidance on negotiating with your credit card company, go to the National Foundation for Credit Counselors at NFCC.org.

Don’t waste your time with third party debt settlement companies. These companies charge you fees for a service you can do yourself — for free.

3. Prioritize your payments

If you’re having trouble making your monthly bills, it’s time to prioritize.

First, look at your immediate needs. Pay your mortgage or rent bill, keep making payments to your utility company and keep food on your table.

Then start to think about paying down your credit card balances. Find out which card has the highest interest rate and pay that one off quickly while making modest payments to your other credit cards.

Remember that credit card debt is unsecured debt — meaning that there’s not much that the credit card company can take away from you if you’re delinquent. You should always strive to pay off your debts. And stop using your credit cards until you pay off your current balances.

– CNN’s Jen Haley contributed to this article.

Garry Marr, Financial Post

It was a stinging rebuke. I took it on the chin last weekend as I waited in line for a ride with my child at an amusement park in Toronto.

 ”My dad has a BlackBerry,” the little monster gloated in front of my own boy as he looked at my bottom-of-the-line cellphone.

 I hate having a cellphone but my spouse says it is a must in case of emergencies. (I’m not sure how my mother ever got a hold of my father in emergencies back in the 1970s. He didn’t even have a walkie-talkie).

I tried to explain to the young lad that I spend as little money as possible on my cellphone, opting for a $50 piece of junk that lets me pay per call — something I don’t do much of usually.

“Don’t you know you can get a BlackBerry for free,” he said, looking at me as if I am the dumbest adult on the planet.

Of course, I don’t expect a child to understand that signing up for a “free” cellphone means a commitment to three years of payments that could easily add up to more than five times the cost of the phone that you got for “free.”

Adults understand the deal. They just don’t care. Everybody wants a free BlackBerry or next-to-nothing iPhone today if they can pay for it tomorrow.

The enormous debt levels in Canada, now 140% of personal disposable income, do not even include all the financial commitments and contracts we have from cellphones to car leases, says Doug Porter, deputy chief economist with Bank of Montreal.

“Most of the traditional measures are the classic borrowing on credit cards, consumer loans and mortgages,” says Mr. Porter. “In the early 1990s, debt was underestimated because it did not take into account the leasing of cars.”

Terry Leon, chief executive of Leon’s Furniture Ltd., proudly claims his company pioneered the whole “do not pay until” programs, which allow consumers to walk out of stores without putting up one cent.

“We are going on as long as 100 weeks in honour of our 100th anniversary,” says Mr. Leon, referring to the fact consumers can now buy something in his store and not pay for almost two years.

There is a difference from most debt with his store because Leon’s does not charge interest. That $1,500 couch is the same price whether you pay for it in full the day you buy it or wait the full 100 weeks before making your full payment.

On its anniversary, more than half of Leon’s customers decided not to pay that day. That’s not hard to understand. Why would you empty your pockets when you don’t have to?

Credit, or temptation, is still everywhere. Even after what has been described as one of worst recessions in history, I’m still being offered financing for everything from fixing my smile to buying a new television set.

I get an offer for a new credit card about once a week and the list of things I can charge on that credit card expands every day. If I was worried about that monthly cellphone commitment, all I have to do it is tack it on my credit card.

I was incredulous when a friend told me he was able to gamble on horses at the racetrack with his credit card. “It just comes up as a charge like it would if I bought something at the Bay,” he told me.

Not that I doubt my friend, but I went online to see if I could set up a gambling account with my credit card. It takes about three clicks, once you plug in all your information.

Scott Hannah is president of the Vancouver-based Credit Counselling Society, a non-profit group that helps consumers find their way out of debt. He notes a strong surge in demand for its services. “Compared to a year ago, the demand for our services is up 118% from last September,” says Mr. Hannah.

With debt levels as high as they are today, consumers have little cushion to deal with any downturn in the economy. “They just can’t handle any bumps in the road,” says Mr. Hannah.

Those bumps hurt a lot more when you have no cushion or savings.

If you’re going to be in debt, why not look for the best deal? The Financial Consumer Agency of Canada has a great website (fcac-acfc.gc.ca) that compares credit card benefits.

It’s a common scenario in the debt-collection world: you find yourself saddled with credit card debts or medical bills you can’t get out from under. When a debt-collection agency comes calling, it will pull out all the scare tactics needed to put you on the defensive – and make you to pay up, no matter what your hardship. The truth, however, is that while bill collectors are full of bluster, they lack real legal muscle.

What does this mean for you? Options. Whether you negotiate for yourself or opt to hire a professional debt negotiator, there are more options than you might think for surviving this experience without sacrificing your financial future. Even if you owe a lot, a creditor will almost always settle for something over nothing when it comes to payment of outstanding debt. So take your time, recognize that you do have some power, and use it wisely.

Negotiating With Collectors
Negotiating your own debt settlement is a viable option for many people. Here are some tips to consider for dealing with creditors.

Prioritize your bills.
No matter what a debt collector insists, that unpaid credit card bill is probably not your No.1 priority this month. Always consider the fundamentals – rent or mortgage, feeding yourself and your kids – before you start handing money over. There’s no point trying to appease one creditor if it means putting yourself in the bad graces of others, or jeopardizing your ability to keep earning more.

Keep records of each interaction.
Note the date and the details of every phone call (and in general, avoid the phone in favor of written communication). Copy and save any letters you receive or send out and, when you’ve come to a payment agreement, be sure to outline it on paper, sign it and save copies, just like a contract or formal agreement. Never send money until you have a written agreement in hand.

Drive a hard bargain.
Estimate how much you can actually afford to pay, and offer less (a relatively common baseline is 25% of your actual debt, though this does vary). Don’t be surprised to get angry or outright rude phone calls and threatening letters. No matter what a debt collector says, keep cool and stay focused on the negotiation. The more in control you appear, the more likely you are to achieve your desired outcome.

Hiring a Debt Negotiator
If confronting your lender isn’t your style, you might want to hire a debt negotiator; just know going in what each side can expect from the partnership.

Read the rest of this entry »