Thursday, May 30, 2013

Empty pockets — interest like a rocket

What Was That Interest Rate?

You’ve probably seen the ads on TV. You know; the ones with a recognizable spokesperson imploring you to call the 800 number and have cash in your account almost instantly.
These loans are commonly known as Payday Loans and although they charge exorbitant interest rates, folks desperate for a short-term loan seem to disregard that detail. The theory is to owe the money for only a few days, so the interest won’t amount to much.
If you think your 29.99 percent credit card rate is high, try 149 percent on for size.  Think that’s outrageous? That’s actually the lowest of the rates I’ve seen on Payday Loans. The highest? 476.09 percent. No, that’s not a misprint.  I guess 476 percent wasn’t quite enough so they had to add another .09 percent.
Is this legal, you may ask?
Usury, the illegal action or practice of lending money at unreasonably high rates of interest, is not allowed by corporations or individuals, but if you’re a sovereign nation, it seems you’re immune to usury laws.
I recently had the opportunity to review several of these loans, so what I’m stating here are factual examples, hard though they may be to believe. For instance, one loan of $1,000 carried a $500 origination fee. So from the instant the borrower received $1,000 he owed $1,500 on which he was being charged 149 percent for an APR of over 200 percent. Another loan of $320 carried a $120 monthly service fee plus an interest rate of more than 400 percent. In addition, these loans carry stiff penalties if not paid back on time.
Our government recently limited Payday Loan interest rates for military personnel. They still allow advertising right on base, but they’ve capped the interest rate at 36 percent. I know I’m on a soapbox here, but that’s what we consider being kind to our troops? And if it’s unfair to military personnel, why isn’t it unfair to everyone?
I’ve come to call these lenders “predator creditors” because of their focus on impoverished, young, naive individuals. Aside from interest like a rocket, the payments, even on “current” loans, are far out of whack compared to other loans. 
I recently reviewed four loans totaling $2,700 with monthly payments required of more than $400 with nearly $200 in “service fees.” That means that the first $200 goes toward fees, the following $200 to those enormous interest rates, and anything left would be paying down principal.
Although these loans typically draft directly from a checking account, when borrowers realize they’ve bitten off more than they can chew, they often close the account assuming they will evade the lender. As you would imagine, lenders making this type of loan may be more than a little aggressive in collections.
I’m sure there are individuals who have taken these loans, paid them back on time, and not regretted the added expense, but my message here is simple: if you or anyone you know is considering one of these loans, please STOP!  Re-assess, ask the opinion of someone you trust about finances, consider alternative plans, and see this as a sign that your finances are in distress and that you need to effect a change going forward.
One closing thought. Whenever I mention these loans, the first question is always, “Who would take a loan like that?” The answer is people in all sorts of circumstances who believe they’ll only owe for a few days. 
I think the more important question is, “Who would write a loan like this?” 

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Wednesday, May 22, 2013

Upcoming Guests on The Money Doctor Show

If you haven't caught The Money Doctor Show yet on GCTV, channel 15, you may be surprised to learn that it is not a show directly about finance, but rather a chance to peek under the hood of local companies, and speak to individuals who have inspiring stories right here in our area.  These are ordinary people with an "extraordinary edge."  I enjoy interviewing them, and offering a forum where we can chat for 30 minutes and learn from their experience.  Perhaps it's something new about what is working for them, what not to do, or just a fun and interesting story.  It's one part talk show, one part financial show, and always fun and entertaining. Everything from baby emus to search engine optimization, and then some!  So, for some positive, entertaining, educational TV, check out The Money Doctor show today.

Channel 15
WMCB Radio 107.9 FM

Also, listen to "The Money Doctor" 
Mondays on WHAI 98.3FM
Wednesdays on Bear Country 95.3FM
Fridays on WHMP"

Upcoming Guests include:

Attorney Steve Weiss - Busting myths about bankruptcy. What most don't know will surprise you.

Steve Capshaw from VSS (Valley Steel Stamp) Commercial and Aerospace Engineering - "Stamping" out unemployment and underemployment with advanced manufacturing training positions. Why it's not your father's job anymore.


Budget Blues Cured, 1,2,3

A Budget That Actually Works - Finally!

 For many, just hearing the word budget strikes fear in the hearts of men, and causes room women to fidget nervously. It seems like a simple process. You have a finite amount of money coming into the household, and you need to make sure that you are not spending above your means. So why is it that so few of us actually have a budget which works, and which we are comfortable with?

At PowerDownDebt, the first lifestyle changing tool we give our clients is our Budget Builder system.  People report to things. A sense of frustration that they've never been able to build an accurate budget, and a sense of relief that this budget system is so simple and effective.

Why is building a budget so frustrating? First, let's take a look at how we've been taught to create a budget. Most commonly, we undertake this task when push has come to shove financially. We gather our bills, and with pen in hand, we begin by adding up all of our monthly bills, and comparing them to our income. Next, we try and project other possible expenses such as gas, groceries, etc. Subconsciously, we trim down real expenses in order to make them fit our income. For instance, groceries might really cost $400 monthly, but since we only have $300 left after paying our scheduled monthly bills, we "give ourselves" a $300 budget for groceries. This is like trying to cram a size 12 foot into a size 9 shoe. At first it pinches, and it warned too long it will either be kicked off, or cause permanent damage. In any case, the feedback is negative.

A simple, more positive, and statistically more effective approach, is to build your budget based on real data. Surprisingly, this is the not only the easiest budget method, but the most accurate, because it is based on real-life expenses, not projections.

Here's How To Do It.
Gather your family together and agree that you will all participate, and you will be as honest and accurate as possible in gathering the data. This is not about pointing fingers and assigning blame, but rather about getting a true sense of where every dollar goes so that your family can pull together as a team, and begin planning properly for things like vacations, emergency expenses, retirement, education and such.

Step 1. Once everyone is in agreement the task is simple. Every expense is easily tracked by simply saving the receipt, or jotting down the expense. At the end of every day, each family member should take all of their receipts and put them in a single place. A jar or other container works nicely. The MOST important rule is to spend as you normally would for at least 30 days. Do not try and cut back (even subconsciously) to make the budget look better. This is about getting an honest look at your finances. If you buy scratch tickets, include it. Things like alcohol, cigarettes, charitable donations, birthday gifts, and one-time expenses all count. If you feel better about it, make a note on the receipt to differentiate between recurring and one-time expenses. Remember, those one-time expenses are real-life expenditures too, and may be replaced by other similar expenses next month. The "extra things" must be budgeted for too!

With all the data in it is time for step 2. Organize the receipts, and total them according to category. Health and beauty aides go in one column, dining out, another. Subtotal all categories. Prorate and add in things you don't pay monthly like insurance or taxes, and tally everything for the grand total. Then compare that number to your net income to discover whether you have a deficit or surplus.

Step 3. Now we really have something to work with. If your numbers show that you have a deficit, you need to solve the fact that you have more money going out than coming in. Begin to look at places you can cut back. One common example would be a telephone bill. I often discover that clients have both a cell phone, and landline, but have cell phone service at their home. There are a number of possibilities for trimming this expense ranging from canceling your landline, to replacing it with some sort of VoIP, and can trim upwards of $30 monthly. Although this is just one example, many options seem to pop off the page using this system. Alternatively, if you notice that you have surplus you can begin to rely on it more comfortably, and funnel it towards savings.

The goal in building a proper budget should be not only to live within your means, but to live BELOW your means, and uncover funds which could go to improve your lifestyle. After all, isn't quality of life what we're all after?

Thursday, May 16, 2013

Baby Emus!

Frances Rahaim, Ph.D. (aka, The Money Doctor)
and Cary Grant, Emu Extraordinaire

This week on The Money Doctor show, my guests are Geri and Stanley Johnson and Dee Dee Mares, from Songline Emu Farm in Gill, Ma. We're live on location with baby emus, and in the studio for interesting interview time as well.  Come and meet Bill Clinton, Cary Grant, Red Number Four, and more. Too much fun! The show airs this Friday at 8 pm, and Saturday at 1:00 on GCTV channel 15. If you don't have access to that channel, you can catch it at next week.

For a link to this show, and others, please visit our Facebook page.

Are You (Eu) Stressed Out?

The word stress today used to describe a variety of situations from crying children, a change of jobs, or being burdened with debt.

But stress is more than just a temporary emotional state. Being stressed over the long haul and result in serious health problems, and in extreme cases, even death.

Recently, I was reminded of the human ability to use mind over matter in overcoming difficult situations. A married couple sat before me with the usual pile of debt and the guilt and responsibility feelings that often accompany the situation. His 42nd birthday looming in a few days, little put away for retirement, this gentleman and his wife intently to a possible solution, and chose to view the situation in a positive light, stating exuberantly,” We feel like we're finally getting things together in our lives. What a great birthday present.” They may just have easily taken a more negative position, but it just wasn't their style.

In August of 1967, the Journal of Psychosomatic Research, volume 11, included a table taken from the Social Readjustment Rating scale by Thomas H. Holmes and Richard H. Rahe which included a list of 43 stressful situations, and assigned a point value to each.

The theory was that although stressful situations may affect different people and cultures in different ways, that having multiple stressful situations within the last year, could increase the risk of becoming ill in the near future.

For instance the death of a spouse had a value of 100 points, while divorce had 73, etc. However, if you have a change in financial state, change in the health of family member, and you took out a large mortgage or loan, all within the last year, you’d score 113 points. Add to that a change in the number of arguments with spouse and your score goes up another 35 points. You get the idea.

The two hypothesized that 150 points equated to a moderate chance of becoming ill, while a score of 150 to 299 increased your risk to high, and 300 or higher meant you had a high to very high risk of suffering from stress-related illness in the near future.

An endocrinologist named Hans Selye coined a term called you eustress (eu from the Greek work meaning well-being or good) to describe a positive cognitive response to stress that can actually be healthy. Eustress is defined not by the type of stress or but rather how one manages stress cognitively. For instance stress that is viewed as a negative threat may take it’s toll on your health more than stress perceived as a positive challenge.

Interestingly enough response one has to stressor can actually be quite different depending on their current feelings of control and timing of the stressor. For example the change of a job that is done voluntarily and eagerly awaited, maybe processed as eustress, while the same under less favorable circumstances may feel more like the bad stress we are most familiar with.

While chatting with local massage therapist regarding the effects stress has on our bodies, and directed to the Holmes and Rahe stress scale, and other supporting research.

One piece of advice most seem to agree on is that being proactive and taking steps to manage the situation is the best approach.

Selling the American Dream

So you’ve decided to put your home on the market.  Maybe you are relocating, or the size of the space no longer suits your needs, or you just feel like it’s time for a change—whatever the reason, many homeowners eventually decide to sell. And as simple and exciting as that decision may seem, there are some potentially expensive pitfalls associated with home sales which people often don’t consider until they are well along in the process.
            Most homeowners have an opinion of what their home should sell for, and they get their hearts set on that number, and begin to mentally start spending their projected profit before they even get an offer. But what happens if their perception of the property’s worth doesn’t jibe with how an appraiser views it, or what the market will bear in terms of a price? And what happens if there are problems that need to be repaired before title is transferred, or additional legal fees due to a ‘cloud’ (problem with) on the title?
One very common and pricey area of concern lies within the septic system regulations of your state or commonwealth. If you are fortunate enough to have a property on an existing town sewer line, great, but if you happen to live in a house with a private sewer system, you may wish to familiarize yourself with the Massachusetts’ Title Five law before you decide on a sale price.  Title five mandates that all properties with private sewer systems pass a “percolation” test to determine the viability of the system and whether it conforms to what have become increasingly stringent state standards. If it passes, the owner can sell the property with the existing system untouched. If it doesn’t, the system must either be repaired or replaced, which can, in some cases, cost upwards of $20,000. That can really eat into the profit a seller might hope to generate.
            Add to that other potential repairs, the inevitable negotiation and renegotiation process and myriad other complications which can prevent the seller or buyer from obtaining clear title to the property, and you have a plethora of issues to consider—ones that may be initially overlooked by a real estate agent or attorney, which most people believe is all you really need to facilitate a property sale. So as much as it may be worthwhile to have these professionals involved, a little research ahead of time on your part can eliminate unpleasant surprises, or uncover strengths previously not considered, and can really pay off in the long run.
            I always recommend that no financial decisions should be made lightly, especially one involving what is, for many people, the single greatest investment in their lives. So before you sit down at the closing table, maybe even before you decide to list your property, and while you’re in the early stages of planning your sale, consider seeking the advice of a financial professional.  Plan ahead to allocate your proceeds prudently, rather than working at whatever is left over.  Adding a financial professional to your team can ensure that you get the most bang for your buck from your little slice of the American Dream.

Friday, May 10, 2013

Thanks to Richard Wedegartner, massage therapist for appearing on the Money Doctor show again this week.