Sharks, Scorpions & Alligators – Payday Loans, Title Loans & NSF Fees

sharks scorpions & Alligators

Payday lenders and title loan companies are Sharks.

You must train your brain that every time you drive by one of these lenders or see one of their commercials to hear the Jaws theme. They are predators and they prey on people who are afraid they can’t make it to next pay day. Let me ask you this, do you think these lenders are in rich or well-to-do neighborhoods? No, of course not. But you drive through a struggling neighborhood or near a military base, and you will see one just about on every block. And once you borrow from one of them do not expect to pay off your loan. You will keep paying interest on it indefinitely. This is how they make money. It is called predatory lending and that is why in many states, pay day lenders have been shut down by the law.

These same pay day lenders are now making loans on titles to vehicles and it is the same trap. Let’s say you own a vehicle that is worth $5,000.00. The title lender will loan you $3,000.00 and place a lien on your vehicle and charge you interest every month. Every month, you will pay them, for example, $300.00, of simple interest. None of this monthly amount pays down your balance. You cannot come up with the $3,300.00 to pay it off for next month, so you keep paying $300.00 a month. No matter how you try you can’t get together $3000.00 because something always happens. You intend on paying more next month, but there are some doctor visits or something else happens and so next month you only make the minimum payment. This goes on for a year. At the end of the year, you have paid them $3,600.00. You have paid them what amounts to 120% in interest and you still owe the original $3,000.00. Does this sound smart? Well, it is certainly smart of the title lender. But for you, not so much. As a bright line rule, just DON’T DO IT!

The same principle applies to the payday loans. You borrow a sum with the intention of paying it all off the next payday. But the next payday comes and you can’t pay it back, so the payday lender says,” OK, just pay us the interest and we will make a new loan.” Every payday, you pay the interest but the balance of the loan does not go down. Even with a small amount, you will end up paying more than 100% in interest in a very short time.
When I am up late at night and the commercials for these sharks come on, one of the things they hook you with is the guilt, “avoid NSF fees”, “avoid the embarrassment of bouncing a check” or some other measure that plays upon your fear. Now, get ready, because I am about to get harsh here. A simple solution to NSF fees is to NOT WRITE CHECKS UNTIL YOU HAVE THE MONEY! Novel idea, I know. But it is the truth. Let me remind you that you are not alone. You are not the first person who has bounced a check.

Hopefully, I have earned the right to speak frankly with you because I have been in your shoes. Just about every mistake I discuss in this blog, I have made. We have been there. We know what it is like to have your rent or mortgage due and to not have the money yet. So, we risk it and give the landlord a check hoping they won’t deposit it until tomorrow and that it won’t clear for 2 days and by then your deposit will go through. But WHOOPS! It deposits in 24 hours and now you have to have an uncomfortable conversation with your landlord. So, next month when you are back in the same boat, you go get a payday loan or title loan so that you can avoid that whole scenario. The problem is that you have now gotten suckered into something you cannot get out of and it’s going to cost you a ton of money you can’t afford.

So just don’t do it, no matter how tempting it is. Instead, call your landlord or whoever it may be and explain the situation. Nine times out of ten, if you are honest and simply explain it, they will give you an extension. They may charge you a fee, but it will likely be less than what you would have paid in bounced check fees, that often create a snowball of fees. I have never had someone not work with me, if I simply call them and explain the situation.

I once paid over $300.00 in NSF fees because 1 item cleared before I expected it to. Most banks have a policy of paying items largest to smallest. The reasoning, I have been told, is that the higher items are for more important items, like mortgage payments and car payments. The reality is, if they pay largest to smallest, they get more fees because more items will overdraft. That’s the real truth. Banks are in business to make money, period. And NSF and overdraft fees are expensive, often $25 to $35 per item. In 2009 the Huffington Post reported that banks make 38 billion, that’s right Billion with a capital “B”, in overdraft fees per year! They also reported that was double what they made in the year 2000. Overdraft fees are income for banks, plain and simple.

Have you heard the fable about the scorpion and the frog? A scorpion asks a frog to carry him across a river. Leary of the scorpion and not wanting to be stung, the frog says, “but you will sting me”. The scorpion assures the frog, “if I stung you, both us will sink and drown”. Feeling better, the frog agrees and begins carrying the scorpion across the river, but midway across the scorpion does indeed sting the frog, dooming them both. When asked why, the scorpion explains, “what can you expect from a scorpion, it is simply my nature.” I’ve heard this fable told in many versions, sometimes it is an alligator toting a rabbit across and half-way the alligator attempts to eat the rabbit, but the moral is the same. Sharks are sharks.  Scorpions are scorpions.

The moral of this story for you is to beware of sharks. Like the scorpion or the alligator, sharks will always be sharks and they will always do what is in their nature. Your goal is to survive. And in this journey to be debt free, your efforts in doing so will be much easier if you stay out of shark infested waters.

And if you need a life preserver, I am here to help.  How can I help?

Love and Prosperity, 

Your GirlFIday

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Mountains, Mistakes and Missteps

100 dollar bill_preview

2884 days…116 days in…

I expected there would be bumps in the road.  That at some point on this FI journey we would have some hiccups in our plan.  I did not think that it would come so quickly.  I naively, I suppose, put a plan together and thought all I had to do was execute.  It’s all just math, right?  It is.  And it isn’t.  Because we are humans.  With human problems.  Kids – that need STUFF.  And food.  You have to feed them. Fears. Impulses.  All of those things and more.

Since my last post, not much has changed.  In fact, due to a mistake I realized I made after speaking with our CPA, I had to halt my retirement contributions until the first of the year.  I discovered I misunderstood how much I could contribute as the employer into my individual SEP and due to that, I have until the end of the year to make up my “income” so I do not go over the percentages allowed by the IRS.  Ah yes, Uncle Sam, he seems to always show up and at JUST the right time.  So in a nutshell – I contributed too much money, too soon.  A good problem to have I suppose, but who wants to be in trouble with the IRS?  Not me.  Been there, done that and it stinks (still paying on that one after 8 years.  Seriously, trust me, a good CPA is CRUCIAL if you are self-employed.) Our CPA is wonderful and has really given us some of the most sound advice.  The problem is follow through.  Much like errant children, it has taken us some time to truly value his wisdom.

Ah taxes. What’s that saying? There are two things certain, death and taxes.…It will be a MOST wonderful day when we have finally put ourselves in a position to not pay so much of them.  Reducing them is part of our overall FI plan – but much like chess or a puzzle box, there are moves that must be made, in order, first.  But right now they are killing us. I am all for paying my fair share.  I like the things they provide – roads, schools, national parks, infrastructure – those things are all good things.  But if I can pay LESS – that would be super-duper awesome too.  As it is, the more we earn to pay our taxes, the more taxes we owe, so we must earn more, to pay the taxes…and so on and so on.  It’s the definition of the “hamster wheel” and we are dying to get off.  This year we have to pay more in estimated taxes for 2017 than we have ever before.  It made my heart leap out of my chest when I saw the number.  I was not prepared.  And therein – is the misstep.  2018 will be much better because we will be going into the year with one of our primary objectives being to reduce our taxable income.  We will do that by investing as much money as our budget will allow into pre-tax retirement accounts.  (Not sure what all of this means?  – Go check out some of the recommended blogs and podcasts mentioned in my last post).

My husband is incredibly fortunate in this regard.  He is a teacher and his school district allows him to not only contribute to a 403B but also a 457 plan…say whaaaat? (If you work in a service field; teacher, police officer, fire-fighter…you likely have the availability of a 457 plan as well and should consult your benefits department to learn more.  Seriously, this is like the most awesome thing ever for you.)  What this means is that we are not limited to contributing $18,000.00 a year into one account.  We can actually contribute double that amount, $36,000.00, $18,000.00 into each.  This was a new discovery for us and we were both floored when we learned of it.  The hurdle is to be able afford to max out both the 403b and the 457 as quickly as possible.  That will be extremely difficult with this mountain of debt we are carrying.  Sometimes I look at the numbers and I am overwhelmed.  Keeping positive and focused, which I usually succeed in doing, is sometimes difficult.  This plan of ours would be so much easier if we didn’t have the debt.  But there is no way around the mountain.  The only way is to painstakingly keep climbing.

Adding to the difficultly of the climb up the mountain, is that the debt service also requires a certain influx of income to also be maintained to keep up.  So not only are we climbing steep terrain, we are doing it with a 200-pound monkey on our backs.  It makes changing careers impossible without adequate replacement income. (and that, folks crushes my spirit and is a discussion for another day.)  It also delays how quickly we can achieve financial freedom.

So…the income is needed to pay the debt, thereby necessitating an increase in income – which increases the taxes, which requires more income to pay the taxes…and here we are right back on that hamster wheel.  Trapped.  That is often how I feel.  It can be so discouraging…

And then something happened….it was as if the clouds parted and a choir of angels began to sing….Well, no, but almost.  I went and looked at my Vanguard account…and there, sitting in my brand-new three-month old account, was quite a nice little chunk of free money.  Interest.  FREE MONEY.  And that was enough.  It was enough for me to catch my breath and look up ahead.  The top of the mountain in the distance, it is far, but I see it.  So we take a deep breath, we stick to the plan, and we keep on going.

Love and Prosperity,

 

Your Girl FI-day.

 

3000 days…Phase 1

So far during phase one, we have identified all of our debt and all of our income.  We have a budget – this our road map for our spending.  If you don’t have one – it is a must.  During this phase we will be tackling our debt with a fury.

We will also be searching for ways to save more on our monthly expenses.  I view this space as a space to not only document our progress and educate others on the “FI-life” but to also have some accountability.  So here are some of the action items we intend to execute during this phase:

  • cut cable
  • cut cell phone bill
  • cut food budget
  • no eating out, except once a month
  • free entertainment
  • start tracking our expenses on mint, track the last 3 months of spending to see where additional cuts can be made
  • pay off a few of our high monthly expenses that can be paid off in the next three months to free up monthly money
  • begin retirement fund
  • pay off Wendy’s car

What I hope you all will find by watching our journey is that we still live a very full life.  We are not misers.  We are simply choosing what matters most and doing a cost/benefit analysis of where our money goes.

I also believe in visuals…So I have created a spreadsheet to track our progress.  Its a little frightening to put this out there, but I know that if WE can acheive this HUGE goal – so can you.

Total Equity Investments Curt’s Retirement Consumer Debt Student Loans W Student Loans C Overall Gains
5.1.17 -295809 106000 0 14427 69922 240601 105713
7.1.17 -290489 106000 0 14427 64602 240601 105713 -5320

Now the above numbers still FREAK ME OUT…however, its important to look at the positives – we reduced our debt, resulting in an overall gain of $5300.00.  That’s pretty significant.  Now lets see home much more we can do by our next update!

– Your Girl-FI-day