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Managing Your Money |
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Borrowers
Click Into Trouble with Online Payday Loans
Bankruptcy
Becomes Harder, But There Are Options
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Five Smart Money Management Moves
If you’re looking
for ways to stretch your paycheck, you don’t have to put yourself
on a strict money
diet or create a complicated financial plan. These simple, painless
strategies help
you make the most of your money.
1. Pay yourself first.
The easiest
and most effective way to save is to take advantage
of direct deposit
and payroll deduction at UCU. With direct deposit, your
employer sends
your paycheck directly to your credit union account. You can
use payroll
deduction to designate an amount of money to be taken regularly
from your paycheck
to build up your savings or pay off a loan.
2. Cash in on savings opportunities.
When you get a raise, increase the amount
you save through
payroll deduction. When you pay off a loan, redirect your loan
payment into
savings. Save part of any bonus, refund, or unexpected cash you
receive. This can
become a habit that really pays off.
3. Cut the cost of credit.
Look for
smart ways to save hundreds, even thousands,
of dollars in
interest payments. For example, when you take out a loan, make as large a down
payment as possible, and go with the shortest term you can afford. Pay your credit
card bill in full by the due date, or pay at least as much as you can beyond the
minimum. If interest rates fall, consider refinancing your mortgage
or car loan. If
you can afford it, consider boosting your monthly mortgage payment or making
extra lump-sum payments to mortgage principal whenever possible.
4. Be a credit union consumer.
Smart
money shoppers first look to UCU for good deals on
financial services. Surveys show that credit unions generally offer more favorable
terms than elsewhere on share savings accounts, loans, share draft/checking
accounts, and credit cards.
5. Don’t overpay Uncle Sam.
While
fat tax-refund checks are fun to receive, they generally
indicate you’re donating too much money to the government each payday. Get a
W-4 form from your employer so you can better match the amount of taxes
withheld from your paycheck to the taxes you owe. Then use payroll deduction
to save the money that used to go to Uncle Sam.
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Borrowers Click Into Trouble With Online Payday Loans
The payday lending industry is booming, and the Internet
is contributing to its dramatic growth. What attracts many online
borrowers is a loan process that entails just a few keystrokes, perhaps a
fax, and no need to look someone in the eye and admit they’re broke. In
exchange for that convenience and anonymity, however, online borrowers
must take risks that storefront borrowers don’t.
Unlike a storefront payday loan, which normally requires a postdated
check, an online loan application asks for all the personal information
anyone would ever need to steal your identity. An online loan also
requires that you give permission for the lender to access your checking
account to deposit the loan and to withdraw fees and interest. Since it is
in the lender’s interest for borrowers to “flip” their loans as many times
as possible, many lenders make it difficult for customers to pay off the
loan and just keep dipping into their checking accounts to collect renewal
charges.
Perhaps the biggest danger of any payday loan is the “debt-spiral” it
triggers. According to the Consumer Federation of America and the Center
for Responsible Lending, payday loans aren’t the quick, one-time fix that
lenders label them. In fact, 99% of payday loans go to repeat borrowers.
At an annual interest rate of approximately 650 (accurate if you are
talking about internet loans; would use 400% if you mean all payday
loans)%, with most borrowers renewing their loans over and over again,
many consumers end up paying thousands in interest and fees to keep a
small loan of a few hundred dollars from becoming delinquent.
Consumer advocates agree that payday loans are among the very worst
options for borrowers, and insist that even many consumers with a
blemished credit history have alternatives.
To figure out what those options might be, contact a reputable nonprofit
consumer credit counseling service (http://www.nfcc.org).
In a typical session, a counselor will review your income, monthly
expenses, and debt. Based on the numbers and other factors, the counselor
will outline your options, which might include using other types of
financing, reducing living expenses, increasing income, making special
payment arrangements with creditors, or seeking legal advice.
You also can contact University Credit Union for help. We offer
several alternatives to Pay Day Loans, such as Overdraft Protection and
small-balance, short-term loans with super speedy approvals to get you out
of a jam.
The best way to avoid needing a payday loan is to save an emergency fund
now, before you find yourself in a financial bind. Set up an automatic
transfer of $50 each payday from your University Credit Union
checking/share draft account to your savings account and you won’t even
miss the money. Do it today, and the money will be there for you when you
need it.
If you’ve already taken out a payday loan and think you may be a victim of
predatory lending practices or fraud, visit the Center for Responsible
Lending Web site, which offers a tool to search for information about
consumer protection laws and contacts in your state (http://www.responsiblelending.org).
Copyright 2006 Credit Union National Association Inc. Information subject
to change without notice.
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Bankruptcy
Becomes Harder, But There are Options
Bankruptcy, which was never an easy option—just got
harder under the Bankruptcy Abuse Prevention and Consumer Protection Act
of 2005.
Now debtors must qualify under a “means” test in order to file for Chapter
7 bankruptcy relief, if they earn better than average wages. And debtors
are required to undergo two credit-counseling sessions—one before they
file a bankruptcy petition and another after filing.
These added requirements mean the cost of going bankrupt is going up
another $400 or more. Previously, attorney fees and court costs ran $1,000
to $1,200, so add $400 to that.
Bankruptcy messes up a person’s financial life. It stays on the credit
report for up to 10 years. That makes it tough to get loans for a car or
home or even a credit card—and makes credit extremely expensive when you
do get it. Think of it this way---creditors know you can’t file again for
up to eight years so they can soak you with any rate they want.
It even can be tough to rent a nice apartment. Landlords check credit
ratings, as do prospective employers and insurers.
That’s why bankruptcy should be considered a last resort, says financial
counselor Connie Kilmark, Kilmark & Associates, Madison, Wis.
There are options to bankruptcy:
1) If you can pay off your debts within three years, do so;
2) If you can’t, contact creditors and explain your situation. Ask if they
will lower your interest rate and waive late fees; and
3) If creditors refuse to budge, find a nonprofit credit-counseling
service to work with you on a debt management plan. Their fees are either
free or very reasonable.
Two national associations can help you find a nonprofit agency: The
National Foundation for Credit Counseling (NFCC) (www.nfcc.org)
and the Association of Independent Consumer Credit Counseling Agencies (AICCCA)
(www.aiccca.org)
maintain lists of accredited member agencies.
NFCC offers an online Zip Code locator, or you can call 800-388-2227. The
AICCA provides state lists of its member agencies and has a toll-free
referral line at 800-450-1794.
One caution: Watch out for debt-settlement companies that masquerade as
repayment plans. “They’ll help you settle, but not before they help
themselves,” says Ken King, executive director of the Consumer Credit
Counseling Service in Sheboygan, Wis.
These firms offer to settle your debts for you. The catch is they charge
set-up fees of up to $1,500, plus monthly fees of $75 or more, King
explains. That means you pay them for several months before they have
enough money to start settling your debts.
And if they do get a creditor to settle for less than what’s owed, the
settlement firm gets 20% of that savings on top of its fees.
Copyright 2006 Credit Union National Association Inc. Information subject
to change without notice.
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