Compound Interest
I use the Permanent Health Insurance website to see if I’m paying too much.
I have worked in the same company as my partner for a number of years. In fact we have both worked there for longer. However we only started dating after a number of years and yes, I should have made a move earlier but I didn’t. Nor did she, so we are equally to blame for not starting the rest of our lives earlier. Still, as they say, you can’t change the past so I’m not going to beat myself up too much; suffice to say, I wish I had. Society would describe me as a professional, like my partner and we live a pretty comfortable life with a number of holidays and have savings to fall back upon should the need arise.
Financially I have always tried to keep a tight ship and regularly review my spending, keeping abreast of any new savings policies that have been released, trying to utilise my tax free allowance that the chancellor allows in the budget. I have spoken to both my parents and my partner’s parents about possible inheritance tax liabilities and the best ways of mitigating any potential liabilities there are, given the increased likelihood of their deaths before ours. However, where I feel I do make most of an impact on things is to keep an eye on where we have arrangements for our regular outgoings. Clearly our major outgoing is our joint mortgage and fortunately we have a tracker mortgage which has allowed us to enjoy relatively low monthly payments for some years now. I also keep an eye on the comparison websites such as Permanent Health Insurance to check on the cost of gas and electricity providers and telephone and broadband providers.
Refinancing: Mistakes and Misconceptions
It is often the biggest mistake we make when attempting to refinance by overlooking and disregarding equity lines that are right around us and that can possibly be sourced with a little ingenuity. You never overlook any possible source of finance when building a property portfolio. This is a common mistake that can cost us a lot in the future as without the right financing we will be subject to things such as higher interest rates as well.
When we look at the equity available around us we also often limit it to our own belongings. This is not a bad practice however when looking to build out we have to think at a deeper level. In our list of equity lines we should in addition to our belongings have a potential list of persons that we can approach to sign with us as guarantors or even as joint owners. This is important to consider in tandem with refinancing.
There is no need to look too far when compiling this list and in fact this list should be close to home for the most part. Ask yourself this question, “Do you know anyone that owns their own home?” I am certain the answer will be an outstanding yes. What about someone that has their own business? These are all options when you are looking for someone to give you that last edge towards getting a loan or even in given you the additional boost so that refinancing is easier to accomplish.
You can use your own resources such as your own equity and any savings you may have and refinance as well but the importance of a guarantor is often overlooked. It is hard to get that loan if you have the requirement of a large amount or sum of money. Even with equity and savings there is no guarantee that the person that is approving the loan will be sufficiently convinced of your ability to repay and hence refinancing is easier with that additional guarantor. It also helps that this person is willing to go out on a limb for you so the provider of the loan is able to establish some level of trust that you are capable of repaying.
This is where building a trust relationship comes in handy. Institutions do not approve loans. We go to many places to source loans such as:
“Banks “Credit Unions “Private Lenders “Wealthy Investors
These are just a few of the institutions that we can approach. However it is the people in these institutions that we have to convince that we are capable to handle a refinancing of our loan and repay it efficiently. We also have to convince them that our plan is one that will be profitable. They are in essence putting there security at stake when they approve a loan for us and as such there must be a certain level of trust in your ability to fulfil the obligation of a loan.
Public Procurement and Very Private Benefits
In every national budget, there is a part called “Public Procurement”. This is the portion of the budget allocated to purchasing services and goods for the various ministries, authorities and other arms of the executive branch. It was the famous management consultant, Parkinson, who once wrote that government officials are likely to approve a multi-billion dollar nuclear power plant much more speedily that they are likely to authorize a hundred dollar expenditure on a bicycle parking device. This is because everyone came across 100 dollar situations in real life – but precious few had the fortune to expend with billions of USD.
This, precisely, is the problem with public procurement: people are too acquainted with the purchased items. They tend to confuse their daily, household-type, decisions with the processes and considerations which should permeate governmental decision making. They label perfectly legitimate decisions as “corrupt” – and totally corrupt procedures as “legal” or merely “legitimate”, because this is what was decreed by the statal mechanisms, or because “this is the law”.
Procurement is divided to defence and non-defence spending. In both these categories – but, especially in the former – there are grave, well founded, concerns that things might not be all what they seem to be.
Government – from India’s to Sweden’s to Belgium’s – fell because of procurement scandals which involved bribes paid by manufacturers or service providers either to individual in the service of the state or to political parties. Other, lesser cases, litter the press daily. In the last few years only, the burgeoning defence sector in Israel saw two such big scandals: the developer of Israel’s missiles was involved in one (and currently is serving a jail sentence) and Israel’s military attache to Washington was implicated – though, never convicted – in yet another.
But the picture is not that grim. Most governments in the West succeeded in reigning in and fully controlling this particular budget item. In the USA, this part of the budget remained constant in the last 35(!) years at 20% of the GDP.
There are many problems with public procurement. It is an obscure area of state activity, agreed upon in “customized” tenders and in dark rooms through a series of undisclosed agreements. At least, this is the public image of these expenditures.
The truth is completely different.
True, some ministers use public money to build their private “empires”. It could be a private business empire, catering to the financial future of the minister, his cronies and his relatives. These two plagues – cronyism and nepotism – haunt public procurement. The spectre of government official using public money to benefit their political allies or their family members – haunts public imagination and provokes public indignation.
Then, there are problems of plain corruption: bribes or commissions paid to decision makers in return for winning tenders or awarding of economic benefits financed by the public money. Again, sometimes these moneys end in secret bank accounts in Switzerland or in Luxembourg. At other times, they finance political activities of political parties. This was rampantly abundant in Italy and has its place in France. The USA, which was considered to be immune from such behaviours – has proven to be less so, lately, with the Bill Clinton alleged election financing transgressions.
But, these, with all due respect to “clean hands” operations and principles, are not the main problems of public procurement.
The first order problem is the allocation of scarce resources. In other words, prioritizing. The needs are enormous and ever growing. The US government purchases hundreds of thousands of separate items from outside suppliers. Just the list of these goods – not to mention their technical specifications and the documentation which accompanies the transactions – occupies tens of thick volumes. Supercomputers are used to manage all these – and, even so, it is getting way out of hand. How to allocate ever scarcer resources amongst these items is a daunting – close to impossible – task. It also, of course, has a political dimension. A procurement decision reflects a political preference and priority. But the decision itself is not always motivated by rational – let alone noble – arguments. More often, it is the by product and end result of lobbying, political hand bending and extortionist muscle. This raises a lot of hackles among those who feel that were kept out of the pork barrel. They feel underprivileged and discriminated against. They fight back and the whole system finds itself in a quagmire, a nightmare of conflicting interests. Last year, the whole budget in the USA was stuck – not approved by Congress – because of these reactions and counter-reactions.
The second problem is the supervision, auditing and control of actual spending. This has two dimensions:
1.. How to make sure that the expenditures match and do not exceed the budgetary items. In some countries, this is a mere ritual formality and government departments are positively expected to overstep their procurement budgets. In others, this constitutes a criminal offence.
2.. How to prevent the criminally corrupt activities that we have described above – or even the non criminal incompetent acts which government officials are prone to do.
The most widespread method is the public, competitive, tender for the purchases of goods and services.
But, this is not as simple as it sounds.
Some countries publish international tenders, striving to secure the best quality in the cheapest price – no matter what is its geographical or political source. Other countries are much more protectionist (notably: Japan and France) and they publish only domestic tenders, in most cases. A domestic tender is open only to domestic bidders. Yet other countries limit participation in the tenders on various backgrounds:
the size of the competing company, its track record, its ownership structure, its human rights or environmental record and so on. Some countries publish the minutes of the tender committee (which has to explain WHY it selected this or that supplier). Others keep it a closely guarded secret (“to protect commercial interests and secrets”).
But all countries state in advance that they have no obligation to accept any kind of offer – even if it is the cheapest. This is a needed provision: the cheapest is not necessarily the best. The cheapest offer could be coming from a very unreliable supplier with a bad past performance or a criminal record or from a supplier who offers goods of shoddy quality.
The tendering policies of most of the countries in the world also incorporates a second principle: that of “minimum size”. The cost of running a tender is prohibitive in the cases of purchases in small amounts.
Even if there is corruption in such purchases it is bound to cause less damage to the public purse than the costs of the tender which is supposed to prevent it!
So, in most countries, small purchases can be authorized by government officials – larger amounts go through a tedious, multi-phase tendering process. Public competitive bidding is not corruption-proof: many times officials and bidders collude and conspire to award the contract against bribes and other, noncash, benefits. But we still know of no better way to minimize the effects of human greed.
Procurement policies, procedures and tenders are supervised by state auditing authorities. The most famous is, probably, the General Accounting Office, known by its acronym: the GAO.
It is an unrelenting, very thorough and dangerous watchdog of the administration. It is considered to be highly effective in reducing procurement – related irregularities and crimes. Another such institutions the Israeli State Reviser. What is common to both these organs of the state is that they have very broad authority. They possess (by law) judicial and criminal prosecution powers and they exercise it without any hesitation. They have the legal obligation to review the operations and financial transactions of all the other organs of the executive branch. Their teams select, each year, the organs to be reviewed and audited. They collect all pertinent documents and correspondence. They cross the information that they receive from elsewhere. They ask very embarrassing questions and they do it under the threat of perjury prosecutions. They summon witnesses and they publish damning reports which, in many cases, lead to criminal prosecutions.
Another form of review of public procurement is through powers granted to the legislative arm of the state (Congress, Parliament, Bundestag, or Knesset). In almost every country in the world, the elected body has its own procurement oversight committee. It supervises the expenditures of the executive branch and makes sure that they conform to the budget. The difference between such supervisory, parliamentary, bodies and their executive branch counterparts – is that they feel free to criticize public procurement not only in the context of its adherence to budget constraints or its cleanliness – but also in a political context. In other words, these committees do not limit themselves to asking HOW – but also engage in asking WHY. Why this specific expense in this given time and location – and not that expense, somewhere else or some other time. These elected bodies feel at liberty – and often do – intervene in the very decision making process and in the order of priorities. They have the propensity to alter both quite often.
The most famous such committee is, arguably, the Congressional Budget Office (CBO). It is famous because it is non-partisan and technocratic in nature. It is really made of experts which staff its offices.
Its apparent – and real – neutrality makes its judgements and recommendations a commandment not to be avoided and, almost universally, to be obeyed. The CBO operates for and on behalf of the American Congress and is, really, the research arm of that venerable parliament. Parallelly, the executive part of the American system – the Administration – has its own guard against waste and worse: the Office of Management and Budget (OMB).
Both bodies produce learned, thickset, analyses, reports, criticism, opinions and recommendations. Despite quite a prodigious annual output of verbiage – they are so highly regarded, that virtually anything that they say (or write) is minutely analysed and implemented to the last letter with an air of awe.
Only a few other parliaments have committees that carry such weight. The Israeli Knesset have the extremely powerful Finance Committee which is in charge of all matters financial, from appropriations to procurement. Another parliament renowned for its tight scrutiny is the French Parliament – though it retains very few real powers.
But not all countries chose the option of legislative supervision. Some of them relegated parts or all of these functions to the executive arm.
In Japan, the Ministry of Finance still scrutinizes (and has to authorize) the smallest expense, using an army of clerks. These clerks became so powerful that they have the theoretical potential to secure and extort benefits stemming from the very position that they hold. Many of them suspiciously join companies and organizations which they supervised or to which they awarded contracts – immediately after they leave their previous, government, positions. The Ministry of Finance is subject to a major reform in the reform-bent government of Prime Minister Hashimoto. The Japanese establishment finally realized that too much supervision, control, auditing and prosecution powers might be a Pyrrhic victory: it might encourage corruption – rather than discourage it.
Britain opted to keep the discretion to use public funds and the clout that comes with it in the hands of the political level. This is a lot like the relationship between the butter and the cat left to guard it. Still, this idiosyncratic British arrangement works surprisingly well. All public procurement and expenditure items are approved by the EDX Committee of the British Cabinet (=inner, influential, circle of government) which is headed by the Ministry of Finance. Even this did not prove enough to restrain the appetites of Ministers, especially as quid pro quo deals quickly developed. So, now the word is that the new Labour Prime Minister will chair it- enabling him to exert his personal authority on matters of public money.
Britain, under the previous, Tory, government also pioneered an interesting and controversial incentive system for its public servants as top government officials are euphemistically called there. They receive, added to their salaries, a portion of the savings that they effect in their departmental budgets. This means that they get a small fraction of the end of the fiscal year difference between their budget allowances and what they actually spent. This is very useful in certain segments of government activity – but could prove very problematic in others. Imagine health officials saving on medicines, or others saving on road maintenance or educational consumables. This, naturally, will not do.
Needless to say that no country officially approves of the payment of bribes or commission to officials in charge of public spending, however remote the connection is between the payment and the actions.
Yet, law aside many countries accept the intertwining of elites – business and political – as a fact of life, albeit a sad one. Many judicial systems in the world even make a difference between a payment which is not connected to an identifiable or discernible benefit and those that are. The latter – and only the latter – are labelled “bribery”.
Where there is money – there is wrongdoing. Humans are humans – and sometimes not even that.
But these unfortunate derivatives of social activity can be minimized by the adoption of clear procurement policies, transparent and public decision making processes and the right mix of supervision, auditing and prosecution. Even then the result is bound to be dubious, at best.
Pros and Cons of Refinancing
Refinancing can be considered a means with which a person replaces his/her current loan with a new loan in order to save money. The loan can be of any type. It can be any consumer debt or a credit card debt or a mortgage.
Many people shelter to refinancing nowadays because it has many pros:
As it helps people to reduce interests, risk, and periodic payment obligations by either lowering the interest rate owed on the loan or extending the period of loan. Also everyone looks for refinancing in order to be able to achieve equity faster.
There are too many individuals who are “house rich and cash poor.” What value is it if your house is paid off in full, but you do not have any liquid cash to support? Keep in mind that your house will no doubt appreciate over the next few years. It will do so whether or not you have a large or a small mortgage. The more equity you have in your house will put more money in your pocket when you sell it, but while you are living in the house it is only “dead equity.”
In essence refinancing can be used to transform available equity in one’s house into ready cash, available for other purposes or expenses.
refinancing an adjustable-rate mortgage into a fixed-rate one, ensures a steady interest rate over time, by removing the risk that interest rate might increase terribly.
As no one is perfect, also there is not good thing without some risks and cons:
Lenders sometimes offer no-cost refinancing, charging you zero points for your mortgage loan. Generally, you will pay a higher interest rate than on an otherwise comparable mortgage with points, and you’ll still have to pay the other costs associated with the loan. there are also closing and transaction fees typically associated with refinancing a loan or mortgage. In some cases, these fees may outweigh any savings generated through refinancing the loan itself.
Some sub prime lenders charge excessively high fees, but you can screen these out by comparing mortgage rates.
All you need is to determine the goal behind seeking a refinancing, collecting information about several lenders options and then work on your refinancing.
Finally it became aparent that refinancing, as hasing lots of advantages it also has disadvantages and risks. You should pay great attention that some refinanced loans, while having lower initial payments, may result in larger total interest costs over the life of the loan, or expose the borrower to greater risks than the existing loan, depending on the type of loan used to refinance the existing debt.
So you have to be carefull and Calculate the up-front, ongoing, and potentially variable costs of refinancing while making a decision on whether or not to refinance and you have to Check your mortgage agreement to see whether it contains a prepayment penalty, and try to avoid prepayment penalties in any refinanced mortgages.
Preparing For Your Golden Years
Planning for your retirement is obviously a good idea. The phrase “the earlier, the better” describes what your policy should be for handling your transition from a harried work life to your relaxed golden years. At best, take twenty four to eighteen months to prepare for this significant change in your life.
* Cleaning Up – Try to pay off any outstanding debts or fiscal responsibilities before moving on, especially those that are hedged against your retirement plan. If you don’t, you’ll probably be paying them out of your pension/savings and that is an incredibly bad idea for a retired individual.
* Doing the Paperwork – A year before you retire would be a good time for you to start doing the necessary paperwork for your retirement. Birth certificates, passports and other identity papers should help smooth your transition to a senior citizen.
* Health Care – Always check with the employee benefits department six months to a year before retirement. Ask them how your health insurance will change once you’re not a member of the company. Depending on the answer, you may have to look around for new or additional insurance for yourself. Also, take into consideration any continuing ailments that you may have. Covering them with health insurance is a good idea, since they may take out a significant part of your retirement income.
* Budgeting For Yourself – Check what your income sources will be after retirement. This can be from your employer – with the company’s own pension plan, Social Security and your own personal savings. After that, make a budget that would fit your approaching financial situation. You really need to do this well in advance, so that you may be able to change it for any required adjustments such as paying for new medical insurance and other expenses that may pop up. A year should give you a large enough margin to prepare. If you’re having trouble balancing it all, a financial advisor is a good investment. Try to find one that has a good solid reputation so as to avoid any problems.
* Making a New Tax Payment Plan – Switching from your salary to your retirement income is a big change but you still have to pay taxes for that change. After retiring, contact your tax advisor on what forms you’ll have to submit and how to set up a good payment plan so that you’ll be able to maximize what you can out of your payout from retiring.
Piggy Banks for Grown-ups: How to help yourself save
We encourage our kids to use piggy banks to save up for special purchases like bicycles and sneakers, but then we never consider taking our own good advice and employing the same means to save for ourselves as adults. But if anyone needs to save, its the grown-ups, even more than the children, because we are the ones with the strained budgets and awesome financial responsibilities and obligations to meet. Maybe we should revisit the concept of the piggy bank, to find out new ways to overcome the stress and hardship of trying to save money when it seems that every day it becomes an exceedingly more difficult task to accomplish.
There are some ways to save that use the same premise, but in more sophisticated ways. For example, dollar cost averaging is used by investors to average out the highs and lows of their stock market holdings, so that on average, they make more money than they would by trying to time the ups and downs of the market. This is done by buying a set dollar amount of stock at regular intervals of time, regardless of the price of the stock, and is most conveniently applied to shares of mutual funds, because they can be bought in dollar amounts that are sometimes easier to calculate. For instance, you can have your broker apply $100 every month to buy shares of a mutual fund. Some months you may get ten shares for that price, and other months youll get eight or eleven shares. But over time, you will steadily increase your holdings, which increases your assets in the same way that socking away money in a piggy bank works.
Another system that applies the same principal is to use automatic withdrawals and deposits that you can arrange with your bank. Each time you get a paycheck, for instance, you can have a portion of it transferred to a retirement account of savings account. Most of the time you wont even notice that the money is missing, and you can unconsciously or at least subconsciously start to save more money.
These methods of using piggybank philosophies to grow our money are strategically wise. Not only do they help us with the discipline of savings, but they also tend to do it in a way that is relatively painless and does not require the constant stress of making a conscious decision about whether or not to save.
Payday loans: advantage and disadvantage
What is payday loan? Payday loan or its another term cash advance is short term loan until borrowers next payday. Usually its a loan for the subitaneous situations, such as: subitaneous disease, disaster and other instant cash needs. Typical loans term is about two or three weeks, but its possible to restructure you loan for a next term. Usual amount of such loan type is 100$-1500$ and only some special lenders could give you more then 1500$. Another feature of payday loan is a big rate, its really big if you compare it with usual loan type. This rate is about 390 – 900 percent per year! The process of the loan is very easy – you have to do the following steps:
-Chouse the best lender for your situation.
-Calculate your expected loan payment, to be confident, that youll have possibility to pay for your loan.
-Investigate terms and agreements of online payday loan service. Its very important step, because the loan conditions various greatly form service to service.
-Fill online application form. Usually its an easy form with your personal information. In some services you have to send some personal documents by fax.
-Wait for approve. Typically from 15 minutes to 1 day (its also different form lender to lender).
-When approved, youll receive your cash next business day on your saving account.
-When term of loan become pay your loan amount and rate for payday loan use.
So, really, its fast and easy, but very expensive way to cover your financial needs. But as any another loan it has its own particularities: advantage and disadvantage.
Payday loan advantages:
+ Fast way to receive extra cash.
+ Easy application form for payday loan.
+ For many lenders your bad credit history is not a problem.
+ You neednt send you personal document by fax for many services.
+ Online application process and approve.
Payday loan disadvantages:
- Big fee rate for payday loan use.
- There is some risk to fall into debtor’s prison.
Thus, its much better to have some cash resource for unpredictable life situations or use some other (no payday) loan type, but if you have no cash resource and you have bad or no credit history payday loan is best help for you. As you see, main payday loan disadvantage is the big application fee. Payday loan is a nice loan type, which helps many people in difficult situation, but it is a nice loan type only for those people, which know how properly calculate there future income!
Open More Than One Account
If you are looking for a way to save money, but always find yourself dipping into your funds, try opening up more than one account at your bank.
By having more than one account you will be able to keep your money separated, which will help you avoid spending cash that you should not be touching. Of course this can all be done with one account and some self control, but it is not always that easy. By having an account for many different reasons, you will be able to keep your money separated, and only withdraw funds from the appropriate account.
The first account that you will want to set up is a savings account. You should put money into this account and never touch it unless you are in an absolute emergency. Savings accounts will also earn you interest depending on how much money you keep in the account. This will give you an incentive to keep as much money as possible in your account.
Next, you will want to have a checking account that you can use to pay any bills that you may have. This way, you will know exactly how much money you have available each month for your bills. By having a checking account you will also ensure yourself of never having to go into your savings to pay bills.
Also, many people have found it to be very beneficial to start a personal account where they keep money that they only use for leisure. By doing this, you will be able to keep track of how much money you spend on things outside of bills. This will also help you to learn to budget your money more efficiently.
You can also open a separate account for any special items that you are saving for. If you want to take a dream vacation, why not open an account for this? Then you will be able to put a certain amount of money into the account every month in order to reach your goal. Many people overlook this type of account, but it offers many benefits and advantages.
Overall, having a number of different bank accounts is a great idea. This will allow you to easily control your spending and saving. You should open as many accounts as you need in order to keep your finances organized. By doing this you will soon find out that you are more organized than ever before.
Offshore Banking – When It Pays To Go Abroad
While you might presume anyone with money in offshore accounts is involved in some scurrilous business affairs, the truth is that anyone can use this form of investment as a totally legitimate way to defer or reduce your tax payments.
Locations for offshore accounts can be held in banks in British waters the Channel Islands or Isle of Man for example, or you could look further afield to the Republic of Ireland or Luxembourg. As with other investments, there are different ways to send your money abroad, with different levels of risk attached.
Some of the benefits include current accounts with higher levels of interest check out the high street banks, many of which offer offshore instant access accounts. These are a relatively safe way to invest. There are also notice savings accounts which can yield exceptionally high rates of interest.
You may choose to put money into an offshore investment fund, which is similar to the normal onshore type, only you usually find that you pay a performance related fee to your fund manager. This could mean that they have more incentive to make sure your money is working hard for you. Check investment companies like Schroders and Gartmore for this type of fund.
Money funds are a high risk form of investing your funds will be pooled with those of other investors and used to buy international currency at wholesale rates. Your shares will be exposed to the vagaries of international exchange rates, and this can be a nerve-wrackingly unpredictable way to invest abroad.
More and more people are choosing to buy property abroad whether as future dream retirement home or as profit making venture. In Eastern Europe and the Middle East you can pick up property for remarkably low prices developments and agencies advertise in the property sections of newspapers, and websites abound. While this could prove a sound long-term way of investing, there are numerous things to take into account the stability of a countrys economy, complicated legal agreements and the cost of travel to and from the property are major factors.
Different countries operate wildly different property law, and you will need to get sound advice on all the implications before buying abroad. Check things like inheritance law for example, in France, there are obstacles to simply leaving property to named recipients in your will. If you do buy abroad, you will probably find it useful to open a multi-currency account.
Never Use Payday Loans
Should I Ever Use a Payday Loan Service?
In the past several years, payday loan stores have been popping up all over the country. With names like “Check Into Cash,” “The Cash Store,” and “EZ Money,” they offer unsophisticated consumers the promise of quick, easy cash with few questions asked. But at what price?
The High Cost of Easy Money
Americans paid more than $6 billion in payday loan fees in 2005, and the number is likely to be much higher when the results for 2006 are tabulated. Payday lending is a big business, and it’s also one of the fastest growing in the country. EZCorp, for example, was a lowly Texas-based pawnbroker just a few years ago. Thanks to expanding into the payday loans business in 2002, the company has more than quintupled its profits, and its stock had the best one-year price performance of any company traded on the major exchanges or NASDAQ, through June, 2006.
While buying EZCorp’s stock a year ago would have been a wise financial decision, actually using the company’s services has never been a good idea. The reason EZCorp and companies like it make so much money is because they rip off their customers, and this is hardly a matter of opinion. According to EZCorp’s 2006 report for shareholders, the average payday loan has an annual percentage rate (APR) of 530 percent – and that’s not a typo – that’s highway robbery. So why would anyone ever use a payday loan service?
Target Market – The Unsophisticated and Credit Constrained Consumer
Most of the payday loan business’s customers are people who are unsophisticated and / or have made bad decisions with their credit in the past. These are people with no savings and no credit, who live check-to-check. They don’t realize that when they agree to pay a $40 fee for a $200, two-week loan, they are paying an astronomical annual interest rate. Or in some cases, they just don’t care – they feel that they have no other options.
A disturbingly large percentage of people use payday loan services in order to avoid incurring NSF (non-sufficient funds) charges with their banks. People living check-to-check, with no access to conventional credit, can be devastated by unexpected expenses. Imagine a single mother who needs to write a $200 check to get her car fixed in order to get to work the next day, but she doesn’t have the $200 in her bank account. She writes the check and then immediately goes to the payday loan store, where she can usually borrow the $200 with nothing beyond verification of her employment with a recent check stub. In this case, the single mom may actually be making a wise choice – since NSF fees are said to have an APR of 665 percent, and bank overdraft fees are even higher, at 1,160 percent APR. Clearly, the system is stacked against those who need the most help.
The Cycle of Indentured Servitude – And How To Avoid It
In the worst cases, people end up working all week in order to pay back their payday loan, and then have to take out another payday loan in order to make ends meet. Thus, the cycle continues, and these unfortunate people are relegated to the modern equivalent of indentured servitude.
The best way to prevent this from happening to you is to always maintain adequate lines of credit. In the above example, if the person could have simply charged the $200 repair bill on her Visa or Mastercard, all would have been well. Using a credit card to automatically pay for your regularly occurring charges, such as your phone and cable bills, is a good way to avoid NSF or bank overdraft fees, as well.
If you find yourself in trouble, be sure to always pay the minimum due on your credit cards – make this a priority second only to survival. If you default on your credit cards, you may have a very difficult time getting credit again in the future. Avoid the mistakes of the payday loan consumer, and of course, avoid the payday loan stores. Your money should be applied for your own benefit, not to the bottom line of unethical companies that make profits for their shareholders by exploiting the poor.
Take Care,
James
http://www.CC-Yes.com