Debt, Credit Card & Consolidation Current News Digest

Next FOMC Meeting March 16, 2010

This coming Tuesday, March 16, 2010, the Federal Reserve’s monetary policy making committee will meet. The Federal Open Market Committee (FOMC), meets about every six weeks to decide whether or not to raise interest rates that can affect home equity loans. If the FOMC were to raise the Fed Funds Rate, it would affect the Prime Rate to which most home equity loans are indexed.

For many months the FOMC has stated that the Fed Funds Rates should remain low for an “extended period.” Futures traders seem to be expecting the FOMC to drop the “extended period” language and move slightly closer to an actual rate hike. According to a recent Reuters article, “Data on Friday showing surprisingly strong retail sales in February suggested to some that the Fed should at least soften its zero-rate promise in case the economy starts to recover more rapidly from the worst recession since the Depression.”

Predicting Prime Rate Using Fed Funds Interest Rate Futures

You may be able to predict what will happen with the Prime Rate using Fed Funds Interest Rate Futures. Fed Funds Interest Rate Futures are showing signs that traders are beginning to believe a rate hike is near. The December Fed Funds Interest Rate Future has already priced in an increase in the Fed Funds Rate to 0.500% from the current 0.000% - 0.250% range. Eurodollar Futures are also in line with a tighter monetary policy going forward.

If you currently have an adjustable rate second mortgage such as a traditional home equity loan, get a rate quote for today’s current margins. Contact a home loan lender for a check up. You may be able to refinance your home equity loan to a lower margin. It may also make sense to reset your term because most home equity loans are only interest only for a short period. If your interest only term is nearly done, refinancing your home equity loan would give you a longer duration of interest only payments.

If you have not yet taken a home equity loan on your house, and think you may need cash in the future for college, home repairs, or debt consolidation, check rates on home equity loans today.

If you’re a first time investor, it’s best to start investing with mutual funds. Mutual funds offer a simple way to garner near instantaneous diversification, the liquidity to buy and sell whenever you want (within limits), along with professional management. In particular, you should consider index funds for their low-cost and tax efficient approach. I do think though that along with index funds, there’s room in a portfolio for Exchange Traded Funds (ETFs). ETFs, when used appropriately, are really an extension of the index mutual fund, but offer investors a myriad of opportunities otherwise not available to a regular old mutual fund.

Interested in ETF investing? Well here’s a brief primer on this investment vehicle: an ETF tracks an index or a basket of assets like an index fund, but trades like a stock on an exchange. These securities share the diversification and performance of an index fund, but their pricing, tax efficiency, and investment flexibility make them a lot more alluring for many investors. In fact, I know several financial planners who recommend nothing but ETF portfolios for their clients (even though many won’t because they don’t get paid through such recommendations).

Why ETF Investing Should Be Part Of Your Investment Plan

1. Exchange traded funds have efficient pricing.

Like stocks, ETFs trade throughout the day and their prices fluctuate accordingly. The pricing of an ETF closely tracks the price changes in its underlying securities. For most ETFs, there is a highly liquid market, making it possible for investment managers to execute buy or sell orders as soon as market conditions change. The pricing of an ETF is efficient because ETFs offer shares through a creation and redemption process. Check out this list of the best online brokers that offer low trading fees for ETF investing.

2. ETF costs are manageable.

Index funds are already quite low, but often, the expense ratio of ETFs can be even lower. Of course we like lower costs, because that means we keep more of the profits to ourselves! But, be careful: buying and selling an ETF will incur commission charges as you would trading stocks, so you need to consider this cost when evaluating overall investment costs.

3. Exchange traded funds are tax efficient.

I also like the fact that capital gains tax exposure is minimized with ETFs, due to passive management, low turnover and their unique redemption process. When redeemed, ETF shares are simply sold on the open market and the tax liability is usually based on the seller’s original purchase price for the ETF, just like a stock. The ability to buy and sell on the open market avoids the problem that mutual fund shareholders typically experience. In particular, when other shareholders sell shares from a fund, a mutual fund company may ultimately have to sell some of the securities it holds and realize a capital gain which is allocated to all shareholders of the fund. And don’t forget — mutual funds are required to pay out all dividends and capital gains annually. So even if the portfolio has lost value that is unrealized, there is still a tax liability on the capital gains that does have to be realized. ETFs typically do not have this problem.

4. ETFs have flexibility.

One of the biggest differences between an ETF portfolio and a regular mutual fund investment portfolio is the flexibility you get. This is more important for those of you who are a bit more sophisticated in your approach and/or who like hedging your stock investments. For instance, ETFs can be purchased on margin, bought and sold at intraday prices, and can be utilized with stop and limit orders or sold short. These are things that you can’t do with a regular old mutual fund. In particular, if you want to redeem your mutual fund shares during the day, you’ll need to wait till the end of the day to get your Net Asset Value (NAV), and therefore your sale price, locked.

ETF Investing: Some Shortcomings

I like the flexibility that ETFs offer: stop and limit orders can be beneficial to risk averse investors, and using an ETF for covered call writing provides great diversification for more conservative stock and options investors. However, I’ve got a few concerns. The technical gripes I have include the fact that the open market pricing gap between the NAV and actual share values (especially for a less liquid fund) can be quite noticeable and determined simply by supply and demand. So I can see how ETFs can potentially become more overvalued or undervalued compared to their mutual fund counterparts. Also, some ETFs aggressively target small regions, commodities and industries, and seem too risky for most investors. In this case, it’s investor beware! ETFs can be a great investment to own — just make sure you know what it is exactly that you own!

But probably my biggest gripe with ETFs is that they encourage short-term stock market trading and stock market timing. As an advocate of long-term investing, I believe that most people — professional or novice — are NOT able to adequately time the market on a consistent basis over time. But more than that, investors who frequently trade in and out of ETFs are racking up commissions costs and potential taxes that ETFs were, in part, designed to avoid. Look at the turnover rates that Business Week recently reported:

“Turnover rates for ETFs are at an average annual rate of 200% per year (an average holding period of just six months), with the most popular ETFs recently running turnover rates from 578% to 735%, all the way up to 7,100% (Russell 2000 iShares (IWM), a small-cap stock index) and 8,500% (SPDR Energy shares (XLE)). In all, some $390 billion of the current $410 billion ETF base represents a vast departure from the beneficial attributes of the original index fund.”

There are several ETF “trading systems” out there that look interesting, but I have yet to see one that offers superior, long-term performance. Those that “back test” their performance don’t offer me comfort. At some point, I’ll report back on what I find.

The bottom line here is that ETFs used wisely can be a great thing. You can use them as part of your long-term approach to lower costs, to reduce tax liabilities, and to achieve a solid and well-targeted asset allocation.

 
Contributing Writer: Todd Smith, CFP

ETF Investing: Why Exchange Traded Funds Are Part of My Portfolio

Don’t just sign up with the first mortgage broker you come across. Make sure that the mortgage advice you get is coming from a reputable firm working in your best interest. Use the following checklist to compare mortgage brokers.

—Ask people you know and trust for recommendations about mortgage brokers they have used. If you are still having trouble getting help, check with the National Association of Mortgage Brokers to find someone in your area.

—Ask mortgage brokers how many mortgage lenders they work with. If a mortgage broker only works with a couple of lenders, you may want to keep looking.

—Find out how mortgage brokers get paid. Some mortgage brokers earn a flat fee while others earn a percentage of the amount of your mortgage loan. Watch out for excessive fees and interest rates, which could be padding the broker’s pocket. If you are trying to keep your out-of-pocket costs down, ask if the mortgage broker’s fee can be financed into your mortgage.

—Ask around in your community about any mortgage broker you are considering. Check with your state’s attorney general and the better business bureau for any complaints.

—Find out what kind of mortgage loan programs are offered through a mortgage broker. A broker should also be aware of programs through the government or local agencies that may help you purchase a home, such as first-time buyer programs.

—Be skeptical of a mortgage broker who claims you can get a mortgage even though you have bad credit or no down payment. Mortgage fraud is a serious problem so be an guard for people who make outrageous promises or ask you to lie on a mortgage application or make other false claims.

—See what kind of free mortgage advice is offered. A mortgage broker shouldn’t charge you just to explain their policies and procedures.  Avoid mortgage brokers who charge just to do a consultation.

—Does the mortgage broker spend time getting to know you and understand your situation? Avoid people who fail to listen to your needs and try to push cookie-cutter mortgage loan programs at you. Not all home buyers are the same so you should be given individualized attention.

Mortgage Brokers with Experience

Choosing a mortgage broker is an important step in the home buying process. Avoid going with the first nice guy or gal you meet. Look for someone who is experienced and truly understands your local housing market.

I know that when I’m not feeling particularly confident in one area of my life, the other areas begin to suffer too. When my job becomes stressful and tiresome, for example, so do my relationships and personal health.

However, I don’t think I’m alone. Many of my friends tell me they also feel a connection between self-confidence and their personal level of happiness. After all, we all want to feel good about ourselves. We want to realize the incredible potential we possess and to really feel worthy, be loved, and have nice things.

But to hold your head high and feel strong on a consistent basis takes focus. It also takes the commitment to look at your life from a holistic point-of-view. When one element of your life is out-of-alignment, then self-confidence is not operating at maximum strength.

A 360-degree approach to improving self-confidence may be the best solution because of the synergies that exist between the different parts of your life. When you begin to understand how these parts connect to one another then you begin to see the beautiful picture that is being created – the picture of your confident life.

Health and well-being
To feel strong, your body must first be strong. Fatigue, a lousy diet, and lack of exercise, all contribute to poor health and a weak body. Good health, however, does not happen overnight. Consider these simple, but healthy quick-wins to kick-start your lagging confidence as well as your metabolism:

1. Take the stairs if your destination is less than five flights.
2. Commit to walking just 10 minutes a day.
3. Trade the fries for a salad and the soft drink for a bottle of water.
4. Start going to bed one hour earlier or wake-up one hour later.
5. Slow down and find a place of stillness where you can be calm and centered; if only for a few minutes.

Finances
The feeling of paying the bills on-time while putting a little money away is a good one. For some, a sense of confidence grows at the same rate as one’s bank account. But money, in a cruel twist of irony, can often determine what we think our true value is.

Feeling empowered over money, or at least the management of money, is the first step to capturing some financial self-confidence.

1. Make a plan. Create a budget and keep to it no matter the temptations.
2. Begin paying more than the minimum payment on your credit card statement.
3. When you receive your paycheck, pay yourself first by putting a modest percentage in a savings account.
4. Attempt to pay each bill by its due date. For ones you can’t pay, contact the merchant and see if different terms can be reached.
5. Schedule a meeting with a financial adviser or accountant with the goal to create a plan that will allow you to be in charge of your financial position.

Relationships
My self-confidence soars when I know I’m making a difference in the lives of my wife, children and friends. Connection, communication and intimacy are all taken to the next level by my soaring confidence.

Nothing is as important as the people I choose to share a life. To keep my confidence strong, I often remind myself of the following:

1. To stay away from negative, toxic people.
2. To live in the moment and appreciate exactly what I have, right now.
3. To put the needs of my children before my own.
4. To tell my wife that I love her every night.
5. To love myself a little more each day.

Career
You spend a lot of time at work. Long hours, difficult projects and missed opportunities can often lead to a lack of self-confidence. However, you can crack the code to your career and get your confidence back on track, too with these reminders:

1. Pinpoint one area you want to improve and put a little more effort there.
2. Tell your boss everything you are doing. Don’t assume she knows; tell her.
3. Put 100% effort into a project for your benefit; not for anyone else’s.
4. Look for the new talents and skills you are developing and then celebrate them.
5. Build your career the right way and never compromise your values or standards.

360 Degrees of Self-Confidence
Good health, a viable financial position, strong relationships and an effective career game plan will all conspire together and deliver a much-needed dose of self-confidence. By blending these elements together and relying on your ability to maintain a focus to each one will give you what you need to improve your self-confidence and complete that beautiful picture of a confident you.

We may never know why runaway Toyotas suddenly seem to be everywhere. The scariest possibility, however, is that faulty computers are driving some victims to their deaths with frightening randomness.  Suspicions that an elusive software glitch in computer-controlled throttles is to blame, combined with powerful images and harrowing tales, has tapped into our primal, science-fiction fueled fear of killer computers.

Whatever the ultimate cause of Toyota's troubles, the possibility of a "ghost in the machine" has consumers wondering about the wisdom of trusting their lives to computers — machines they know are apt to hiccup and fail. Old-fashioned mechanical linkage between gas pedal and throttle somehow seems safer than the new "drive-by-wire" technology, and this new understanding of just how much of a car's activity is computer-controlled begs the question of whether we've been too fast to trade mechanical for digital.

Or perhaps the Toyota incidents are a signal that we’ve passed some tipping point in the relationship of man to machine? Some experts are wondering if our cars have become so automated and easy to use that drivers are now too detached, unaware of the inherent risks in motoring down a highway at 70 or 80 mph and unprepared to regain control if something goes wrong.

Computers fail in unpredictable ways. What's worse, they seem to fix themselves unpredictably, too. Anyone who's experienced a surprise computer crash, followed by a reboot that seems to magically resolve the problem, understands this maddening element of 21st Century life. Perhaps an IT worker at your office will ask you to reproduce the problem — but often you can't.  So your helper shrugs and smiles and slinks away, and you go back to your tasks, left to wonder when the ghost in your machine may reappear.

It's one thing to lose a document to such a ghost, but quite another to risk your life with one.

Toyota steadfastly maintains it has no ghosts. Still, millions of Americans are now aware of so-called "drive-by-wire" technology that until now they'd been blissfully ignorant of. And they are becoming aware that more by-wire technologies — brake-by-wire, turn-by-wire, etc. — will soon put only zeros and ones between them and a potentially deadly accident.

"We are talking about this all the time now,” said Jake Fisher, senior automotive engineer for Consumer Reports.  “There is a lot of feeling that having no mechanical linkage sets up a situation where the electronics could go haywire and you couldn't control the car.”

While that may be true, it's a little late for the debate. The first drive-by-wire car was introduced back in 1988, and Toyota began converting all its models to electronic throttles in 2002. The vast majority of new cars sold in the U.S. today uses drive-by-wire.  And when new federal regulations requiring a safety tool called electronic stability control kick in during 2012, all cars will employ it.

Computers as scapegoat?

Bill Visnick, senior editor at Edmunds.com, thinks that computers are right now being used as a scapegoat in the Toyota incidents.

"For people looking for an explanation, it seems like a handy one,” Visnick said. “You know, 'Those darn things! Computers control everything nowadays.' People complain that technology has taken over our lives. Well, I'm not ready to go there just yet."

He thinks electronic throttles — which perform without incident millions of times each day — will ultimately be exonerated by investigators, but public concerns will force the auto industry to take a new look at its digital conversions.

"This will only increase the discussion about what's an appropriate level of electronic control for devices we use in our cars that are tied to our safety," he said.

Industrial design guru Donald Norman, a professor at Northwestern University, a former Apple Inc. designer  and author of “Design of Future Things,” is more skeptical of the throttles and the expanded role of electronics in cars. 

"Every company has software problems," said Norman.

The number of possible interactions is huge in a car with dozens of computers on board, so it's impossible for Toyota to be sure its cars are 100 percent clean of software bugs, he said.

"No professional software person ever says that. They say there are 'no known bugs' in the software," said Norman. 

Furthermore, because unintended acceleration incidents are rare, finding any potential bugs is even harder.  "But just because it can't be reproduced in a lab doesn't make it any less serious," he said. 

Safer in the past?

Concerns about random computer errors are justified, Fisher said, but it's important to know that mechanical linkages also fail at random intervals.

"A cable could get kinked, the springs could get stuck, the springs could break. A stuck-open throttle could happen with a mechanical failure, and did happen," he said.  Meanwhile, he noted, airplane passengers trust their lives to fly-by-wire technology every day, since commercial airliners have long since traded mechanical for digital controls.

That may be, but the idea that a crazed computer could one day send you hurtling madly down a highway at breakneck speed is enough to give one pause about new technologies.  Still, the conversion to digital will be hard to stop, or even slow. Already, designers are well on their way to creating computer-controlled automobiles that will literally drive themselves around town.

But even if electronics aren’t ultimately shown to have been to blame for Toyota's surprise acceleration problem, Norman said, the publicity has brought to light a serious problem with today's heavily-digital cars: We're only half-way to our destination.

"There’s nothing wrong with automation,” he said. “Many automated features are very safe; you never have to think about them, like fuel injection. … The problem with automation is when it's really half-automation."

For example, he said, new features in some luxury cars offer help with staying in lane, with avoiding collisions and with maintaining a constant speed.  But none of them is fool-proof, and some might be actually make driving more dangerous by lulling drivers into a false sense of security.

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 "The automation that's a problem is automation that's not quite there yet, that works fine until it doesn't work,” he said. “….These tools are not really good enough to fully protect you, but they kind of work so you start relying on them, but then they fail and you are dead."

The false sense of security is easily observed during bad weather, each time a four-wheel-drive SUV careens past you down a wet or frozen road at reckless speed.  Even though 4WD offers little help with stopping, many drivers seem to feel invincible when driving in storms. 

"You see them driving without snow tires, they don't have a sense of the road surface, and when it comes time to stop, they are the first ones to spin off the road," Fisher said.

This is a slight variation of what is sometimes called the Peltzman Effect.  In the 1970s, economist Sam Peltzman claimed that car safety devices could be counterproductive because they actually encouraged reckless driving.  While some of his claims have been discredited, it's hard to argue that today's drivers aren’t more detached than ever from the physical act of driving. That, in turn, can contribute to unsafe behaviors. Some cars make it possible to drive 90 mph while feeling as comfortable as sitting in a living room chair.

Ease of operation=hard to control

This detachment may be playing a role in the Toyota unintended acceleration tragedies, Fisher said.  For example, he said, drivers who pilot manual transmission cars are intimately aware of how to disengage their transmissions from the car's drive train by shifting into neutral, something they do dozens of times each day.  But many automatic transmission drivers have never once put their car's gear box into the neutral position and have trouble performing that task in life-threatening crises.

Newer luxury cars have even more automation and ease-of-use features. The car most associated with the acceleration problem, the Lexus ES350, is particularly automated, Fisher said. It boasts push-button starting and a neutral position that's out of the driver's normal operation range.

"It's a very isolating vehicle, he said. “That makes it incredibly easy to operate, but some things, like putting the car in neutral, are not obvious."

Norman disagrees with the detachment premise, and instead blames a lack of standardization in the new feature implementation.

"It's really a design issue," he said. "Every automobile has different ways of handling these things. … We've all experienced a situation where you are in a new car and you want to blow the horn but you can’t find it. It's the same with the on-off switch."

Related coverage

Complex car controls equal confused drivers

Media coverage may fuel spike in Prius reports

How to stop your car when the throttle is stuck

Drivers who are in mortal danger cannot be expected to find and work unfamiliar controls, he said. Industrial designers have the bad habit of building interfaces for ideal conditions, and creating designs that create unnecessary struggle in stressful situations.

"When danger happens, you can't think creatively," he said.

That’s especially true if you have been conditioned to think less and less about driving, Visnick said.  Clearly, automakers are moving toward a world where cars speed up and slow down on their own, maintaining safe distances by communicating with each other.  The fact that so many drivers talk, or even text, while driving shows that many consumers would be happy to surrender control to their cars.

"They are telling you they would prefer to be doing something else," he said.

Visnick thinks the current wave of runaway car stories will ultimately be a blip on the march toward fully automated driving machines. He expects steer-by-wire to appear next (some high-end cars already have a form of electronic-steering assistance) and brake-by-wire soon after.

"I don't think anybody is going to generate evidence that the electronic throttle really is the culprit for unintended acceleration," he said. 

Norman, on the other hand, expects things will get worse as we move toward completely automated cars.  Highways jammed with speed-controlled vehicles will handle traffic more efficiently — moving cars along in synch only a few feet apart – and that will cut down on the volume of accidents, he said. But when accidents occur, they'll be much more serious, involving hundreds of cars. He compares the situation to the interconnected power grid, which is generally more reliable, but fails spectacularly when it fails because of the domino effect.

"The number of deaths per year will diminish, but when there is a crash hundreds of people will die,” he predicted.   

In the meantime, automakers need to do a better job of standardizing their designs when new electronic features are implemented, he said.  Designers should do a better job of taking into account what drivers might do under intense stress, and be slow to change current standard layouts for essential items like gear boxes.  And they should design in safety features, such as “brake overrides,” which instruct the car to let “let the brake win” if a driver – or a ghost — pushes both the brake and the accelerator at the same time.

And how can Toyota restore consumers’ faith in their cars, and in digitized automobiles in general?

“The best way to make people feel better is honesty,” Norman said.  “When the  trouble happens you admit it, make assurances  that the problems are rare and that the world's best people are attacking it. The airline industry does this. The (National Transportation Safety Board) does thorough investigations and makes recommendations, and that reassures people. … The auto industry has to learn to do that as well.”

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If you’ve ever watched a television in the last few years, you’ve undoubtedly seen the FreeCreditReport.com commercials with the guy playing the banjo. In recent months, Experian, the parent company of FreeCreditReport.com, has come under fire because:

1. The credit reports are free, if you remember to cancel the trial (big if!).
2. Consumers have been educated by the FTC that they can get a copy of their credit report for free once every 12 months, no strings attached… except they have to go to AnnualCreditReport.com, not FreeCreditReport.com.
3. Consumers are, knowingly or unknowingly, signing up for the trial service, getting their free credit score and reports, and then not canceling.

So, in early November, the Bucks blog on the New York Times wrote about how Senator Chuck Schumer of New York wants the FTC to force Experian to give you your free report and score before they ask for the credit card information. This was largely shelved because the CARD Act included a provision that required credit report services to include a disclaimer.

I understand the need to police overtly scammy negative option billing practices but how much intervention is too much? I think it was right for the FTC to force Experian to notify visitors to FreeCreditReport.com that they are not affiliated with the free credit report program. It’s also good that the site informs you that you are signing up for a free 7-day trial. It should also be clear that you will be charged for it after the trial because otherwise they wouldn’t ask for your credit card information! (to be clear, I’m fine with the regulation as it stands now… but I didn’t like Senator Schumer’s idea of forcing Experian to change their business practices in that way)

So at what point do we stop? At what point does common sense get completely thrown out and replaced with regulation? I’m curious to hear your thoughts on this.

Your Take: Common Sense vs. FreeCreditReport.com from personal finance blog Bargaineering.com.

I keep intending to retain “ask the readers” as a regular Friday feature — and I keep failing. You folks send me tons of great questions, and I’d love to share more of them. This week, for example, Lisa wrote with the following.

“Having kids has made spending choices much more emotional and complex,” she says. “You can’t always calculate a return on investment.” Here’s her predicament:

My husband and I are looking to purchase a home in our new city, but we’re having trouble deciding where our values, finances, and priorities intersect.

We have young children, one who will start public school this year. We’re considering buying a home in a modest neighborhood so we could have a house/car replacement fund available, rather than taking all of the down payment money and putting it in a “better” house. The schools in the neighborhood are solid, but not the best in the district. If we buy in this smaller, less fancy area, we can choose a 15-year mortgage, minimize our overall house expenses, and have more money for all of life’s priorities. But, it feels like we’re “cheaping out” on the kids.

To compound our “analysis paralysis”, we lost a fair amount of equity when we had to sell our house to transfer out of state, so we’re feeling less than enamored with the idea of putting money that is currently liquid into a building that isn’t guaranteed to hold its value, much less appreciate. (We have no car/consumer debt, and we have a comfortable emergency fund.)

I think our family might feel more comfortable in a more modest neighborhood with more coupon-clipping parents and kids who don’t have the latest and greatest, but I also want my children to have a great education. Have other parents faced this battle, doing what’s best for the overall budget vs. doing what’s expected for our kids? We’d love to hear how it worked out for you.

I love questions like this. They’re a clear demonstration that personal finance isn’t only about the numbers; it involves a complex calculus of math, emotions, and dreams.

Most of the time, I can offer suggestions when people ask these sorts of questions. But when it comes to kids, I’m at a loss. Kris and I have chosen to remain childless, and as a result, I’ve never had to wrestle with these sorts of sticky issues.

From a non-parent perspective, I admit that the obsession over which school a kid will attend seems…well, I don’t know how to put it in words that won’t make people angry. But I’ve watched friends and family go through mental and financial gyrations to get their kids into the right pre-schools, which boggles my mind. I’m a firm believer that education is more about the child than it is about the school. If a kid has been taught to love and value learning, she can thrive almost anywhere.

In other words, I’d urge Lisa to make her decision based on finances and not the school district. This may mean she needs to take a more active role in fostering her children’s intellectual curiosity, but that’s a good thing all the way around. But what do I know? As I say, I don’t have kids, and I don’t know what it’s like to actually face this decision. It’s one thing to say it and another to live it.

So, what do you parents say? How do you judge the trade-off between expenses and education? Is it worth paying more to live in a good school district? How does one make this sort of decision?

—
Related Articles at Get Rich Slowly:

• Workshop for Kids
• links for 2007-04-06
• links for 2007-03-26
• links for 2007-03-31
• How Do You Teach Kids the Value of Money?

Imagine that you’re in a financial bind: would you be able to resist those ubiquitous ads around the web that entice you to “get a fast cash loan”? You may be one of those wondering how to get a personal loan in these tough economic times. These days, many people with little to no money are turning to high interest payday loans to assist them when financial emergencies arise or even to pay monthly bills. However, many do not realize the danger of payday loans until they are deep in debt with no way out.

What exactly is a payday loan?

To put it simply, a payday loan is a short-term loan. An individual goes to a payday lender, writes a check for the amount they want to borrow plus a fee. The payday lender then holds the check for a short period, typically two weeks, and cashes it at the end of that period. The borrower may also have the option of extending the loan at the end of a two-week period if they don’t have the sufficient funds to pay. Now this is where people get into a lot of trouble because when loans are extended, these loans accumulate more fees. This is precisely why payday loans are dangerous — they’re extremely expensive because they charge an enormous amount of interest and fees, typically with an over 100% annual percentage rate. They are in no way, shape or form, a good way to manage money or borrow money.

Whom do payday lenders target?

It’s always the most financially vulnerable who fall prey to these arrangements. These loans are targeted at lower income individuals who have no other means of borrowing money when an emergency arises. You will notice that you will never see a payday lender in an upper class neighborhood, but you’ll often find these establishments well ensconced in geographically low-income areas. Customers of these establishments are individuals who need quick cash and are looking for an easy way to get it. And indeed, it can be a tempting “way out” for many poorer clients, since by simply writing a check (whether or not you have funds at the moment), you can get a loan and worry about the consequences later. It’s fast and easy, with no credit check required!

What are the consequences?

Financial counselors and experts will tell you that clients who begin using payday loans typically have a very difficult time paying them off. What typically occurs is an endless cycle of borrowing and paying until the individual reaches a point when they can no longer afford the fees and interest charges that have compounded from extending payday loans every two weeks. At this point, the borrower will call a credit counseling agency for help with paying things off. Unfortunately, it’s also at this point when their credit gets shot as they’ve become delinquent on their loans and see no way out, given the amount of income they are bringing in.

Have A Cash Advance Payday Loan? 3 Tips For Paying It Off

Unfortunately, most credit counseling agencies are unable to place payday loans on a debt management plan. Payday lenders rarely offer benefits or lower personal loan interest rates through credit counseling programs. Still, there could be constructive ways to help a payday loan borrower in a bind. If you find yourself in this position, then here are some options to consider:

1. Talk to the payday lender.
The first option is to try to negotiate. Call the payday lender and see if it is possible to speak with the manager of the establishment. You can then ask this person if they can place you on some type of hardship program where you can afford the payments and possibly have a lower interest rate. The same ideas apply here as you would if you wanted to lower your credit card interest rates. While payday lenders are in the business of making the most out of each loan they approve, they’re also eager to salvage agreements with those borrowers who are sincere about working out their payment problems.

2. Wait for your payday loan to go into collections.
Another option is to wait until your loan goes into collections. If you have borrowed money and the accounts are past due, you can expect your payday lender to go to great lengths to coerce and threaten you to pay. If you continue to be uncooperative, then eventually, your loan will be turned over to a collection agency. Once this happens, you may be able to roll over your accounts in collection onto a debt management program. This will provide you with a more manageable payment and an estimated payoff time.

3. Settle your debt.
Finally, you can try to contact a debt settlement company and proceed with a settlement, or file for bankruptcy. With this approach, you’ll need to deal with a bankruptcy attorney or debt professional.

Final Thoughts

You should avoid getting a payday loan as much as possible. Still, there are people who insist on securing such loans regardless of the consequences. If you are one such borrower, then make sure it’s truly your last resort to go down this path. Weigh the risks and the benefits of a quick cash advance or short term loan. The risks here are great, so your benefits (per your particular situation) better be worth the money you end up forking out, if you do decide to opt for a loan like this.

Always do your best to find other alternatives to borrowing. Perhaps you can find out how to apply for a loan through other avenues and sources. As an alternative, do your very best to save up for an emergency fund in a high interest savings account, so that you do not have to depend on a credit card, bank, or payday lender to get yourself out of an emergency. This is the best way to avoid falling prey to payday lenders.

Have A Cash Advance Payday Loan? Tips For Paying It Off

Consumers who make use of unsecured personal loans may not have the best perception of bill collectors. Especially for people who have taken out high interest bad credit personal loans, it’s easy to view bill collectors as a pack of worthless parasites who have no redeeming value whatsoever.

However, the reality is that without bill collectors, there would be no way that unsecured personal loans would be available, let alone bad credit unsecured personal loans, let alone unsecured personal loans that have a relatively low fixed interest rate and manageable repayment schedule.

Unsecured Personal Loans Are a Pure Numbers Game

In order to understand how important bill collectors are to the food chain of unsecured bad credit personal loans, it is essential to realize that the decision whether or not to offer this high risk brand of credit is entirely dependent on the data that banks and lenders collect regarding two main factors:

– The default rate of personal loans

– The settlement rate after personal loans have defaulted

Bill collectors make a direct impact on both of those all-important numbers. Because of this, bill collectors make a direct impact on the decision-making of lenders who make these high risk loans.

Without bill collectors to track people down and make sure repayment rates are decent, even after defaults, there can be no doubt that unsecured personal credit would be extremely hard to come by, and possibly impossible for the bad credit borrower.

Bill Collectors and the “New Normal” of Pretty Much Everyone Drowning In Debt

One of the most popular reasons for taking out an unsecured personal loan is to consolidate high interest credit card debts into one monthly payment. Meanwhile, millions of Americans are simply in too far over their heads to address their debt problems in any comprehensive way. Bankruptcies happen.

In this environment, the behavior of bill collectors has, by and large, been adjusted. Of course there are still those bill collectors who think they’re Don Corleone, but there is also a softer approach that many bill collectors apply to good effect.

For example, collection agencies that are contracted by credit card companies and personal lenders may be given increased ability to negotiate debts in order to settle debts once and for all. Bill collectors may be authorized in such cases to reduce debt amounts in return for immediate payment of a portion of the debt.

This “room for negotiation” reality is certainly something to keep in mind when dealing with today’s breed of bill collector.

Do you use a to-do list? Most of us have some kind of running list of tasks which we want to get done (even if we keep this list in our heads). And I expect that at some point, like me, you’ll have had the experience of creating an extremely ambitious to-do list … only to end up completing just a fraction of the tasks on it.

A to-do list in itself isn’t any kind of magic. You might feel good about writing it, but on its own, it won’t get the work done! And sometimes, your list can end up being a hassle, draining your energy or just getting in the way.

I can’t give you a magic system, because the way you work is no doubt different from the way I work – we all have slightly different approaches which suit us. But these steps should all help you to get your to-do list under control:

Step 1: Try Different Mediums
Do you keep your to-do list on the computer, or on paper? For a week, try doing the opposite – and see what difference it makes. I’ve gone through various to-do list mediums including:

• Single sheets of lined paper (as a student – a whole week of tasks fitted on one sheet!)
• A notebook with a page per day (when I started freelancing)
• A computerized solution which uses templates to easily input recurring tasks (nowadays)

Your system will depend on how you like to plan and work, and on the types of tasks you have. My best suggestion here is to experiment – it’s very easy to get stuck in our ways and to assume that the system we have is effective just because it vaguely works.

Step 2: Don’t Over-Plan
The biggest mistake that most of us make with to-do lists is to get too ambitious. We write down all sorts of things which we want to get done – only to end up feeling overwhelmed, frustrated and annoyed at ourselves when we don’t achieve it all.

Many experts advise limiting your to-do list as much as possible: some suggest writing down just three-five tasks each day. When you put an item onto your list, ask yourself: Do I want to do this?

If not, can you delegate it? And does it really need to be done?

Don’t fill up your to-do list with “nice to do” items … if you want to track these, try keeping them on a separate page or in a different file, so that you can turn to them when you’ve completed the day’s work. That way, they’ll feel like bonus achievements rather than yet another thing to slog through!

Step 3: Make New Tasks Wait
Another common mistake is to plan out a perfect day or week, only to end up shoving new tasks in as they arise. Perhaps you’ve got your three key tasks for the day all planned, but then you check your email and a client is asking for some revisions on a project.

Unless a new task really needs to be done the same day, write it on tomorrow’s list. (Or on a different day later in the week.) I find that creating this buffer lets me focus on what’s important first, rather than just on what happens to catch my attention. Often, an emergent task can wait 24 hours without any problems at all.

Step 4: One Task At a Time
Finally, when you’re actually working from your to-do list, be clear about what item you’re tackling at any given moment. Flitting around trying to do five things at once won’t do you any favors: you’re more likely to forget things, make mistakes, or get distracted.

I like to annotate my list as I’m going along with “1″ against the task I’m going to tackle next, “2″ against the one after that, and “3″ against the third. This helps me to stay focused – if I’m tempted to switch to something else, I remind myself that I’ve chosen to work in a particular order so that I can get all the important things done while I’ve still got plenty of energy.

What does your to-do list look like? Is it working for you?

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