Tips to be extra careful about getting six types of extra cash

Sat May 2, 2009 | | Posted in Debt



That’s sweet sound to my ears. Anyone who hears this will draw immediate attention. Who wouldn’t want extra cash in their pockets?

Let’s face it. The rich get richer because they always look for ways to raise their cash level in their treasuries and it’s highly likely that they succeed.

The poor get poorer because when they look for extra cash, they never get it and if they do get, it is at huge cost to them – to their worst disadvantage. It’s highly likely that they fail. That’s a huge difference not only between their mindset but the way they implement it.

Both groups have goals. One has a strategy to pursue – they don’t look for free lunch. The other acts on the spur of moment – they always look for free lunch. There is none.

Believing in the promise of free cash will often put you deeper into financial misery than you already are. Jobs are being lost, salaries are frozen and the housing and stock markets are running lower than they have in years.

Check out the following list of financial services and avoid them as best as you can. Let’s face it. Many of these services were created not to squeeze the last drop of blood from the rich but folks like us. So you better be careful.

All these services, in one form or another, are all blood suckers. They would leave you one day homeless or worse in the gutter. Needless to say, don’t make it your way of life. Change your mindset and live within your means.

Here are Tips to be extra careful about getting six types of extra cash:

1. Pay day loans

   Pay day loans seem like a fantastic idea. They are non-invasive, and within minutes you can walk out with anywhere from $50 to $2,000 based on your recent pay stub.

   To make our crude calculations simpler, let’s say you make $200 a week after taxes. But your payday is two days away. You need the money now. So you borrow $100 from a pay day cash service. They charge you $15 for their service. When you get your paycheck, $185 goes in your pocket. But you had hard time paying your bills when you were getting $200. Now it is $185.

   What’s that in terms of interest? Math and English not being my first language, I think that comes out to be 15%, right? But that’s 15% a week. Just simply multiplying numbers, that comes out to be more than 750% a year – ignoring, of course, the fancy formula how banks figure it out. I lived in New York City in the 70s. I used to read stories like that about the mafia.

   The problem gets worse when you keep repeating the process every week. Most people that go down this path just keep rolling the amount over and over again.

   Everything’s great until one day the lender just changes its mind about advancing you the money. Because you cannot pay back anymore. You are left with an empty wallet and perhaps hundreds or even thousands in interest charges and administrative fees.

   If you thought your credit card rates were high, think again. So what’s your option. Your best option would be borrowing from family or even asking your employer for an advance on your next salary – even if both approaches are somewhat humiliating. But it’s better than lying in the gutter one day.

2. Credit card cash advances

   Credit card cash advances work much like your debit card. You swipe your card at an ATM, enter your PIN and you can withdraw cash up to your cash advance limit as established by your credit card issuer.

   It sounds extremely easy, but it’s one of the worst ways to obtain cash. With a cash advance, the interest starts accruing immediately; there is no grace period and with a lot higher interest – more than 28% APR.

3. Credit card convenience checks

   Who hasn’t received these so-called convenience checks? Most often, you get them in the mail along with your monthly statement. They are positioned as a balance transfer offer, but they are checks that you can technically deposit anywhere. And they are blood suckers.

   Convenience checks frequently come with attractive low interest rate offers that may actually make some sense to you. However, before drawing down your credit line by using these checks, carefully read the terms and conditions. There is almost always a fee – usually 3% – associated with this “convenience.”

4. High interest home equity loans

   Historically, tapping into your home as a source of cash has been a great funding source, but let’s face it. Over-leveraged home values were what got the United States into the mess we are in today. With home prices falling, you may find that you have less equity than you thought.

   If you are investing the money back into your home for improvements, it’s not a terrible idea to go this route, but if you are counting on this to pay bills, you should avoid this approach entirely.

5. Title loans

   This is not the most common form of loan, but when things are looking bleak, this monster seems to always find those in need. If you own your car, you can take out a title loan – basically using the car as collateral. In most cases, the person taking out the title loan ends up losing his or her car to the creditor.

6. Pawn shops

   Most people do not look at a pawn shop as a loan transaction, but that’s exactly what it is. If you need cash, the pawn shop owner will take what you have (jewelry, valuables, etc.) and give you a ticket and some cash. The cash provided is far less than what the item is worth and yes, interest is being charged on this amount given to you, and the rates are rarely friendly.

   If you default or show up even a day late, the pawn shop will then sell your item for what it wishes, usually retail price or close to it. If you want it back, you have to pay the full retail price. If you just need some cash and are totally OK with never seeing the item again, you would be smarter having a garage sale or posting items on eBay.

In a Nutshell
Tightening credit standards and bad credit scores are making it harder for everyone to acquire loans and cash. When things look bad, it can be very tempting to take someone up on their offer to loan you money on their terms.

Before going into even the smallest amount of debt, evaluate your finances, analyze the terms and conditions of any financial transaction and make a good decision – even if it means being stone cold broke for the coming weeks. If you think things are bad now, making a shortsighted decision can potentially make matters way worse.

Always try living within your means. When you start following this simple concept, you would find yourself debt free in a lot shorter period of time than you might have thought.

What do you think?

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• Stretch grace period on your credit cards to improve cash flow

Information contained herein is general in nature, and is provided for informational and educational purposes only. Past performance is no guarantee of future results. Talk to your financial adviser.

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