15 Fifteen.docx

Fifteen Many times, in your life you will be faced with the challenges of making large appliance and furniture purchases. Most of these large household purchases will usually need to be financed. Therefore, you need to confirm that your budget has the discretionary income available to make the month...

Fifteen Many times, in your life you will be faced with the challenges of making large appliance and furniture purchases. Most of these large household purchases will usually need to be financed. Therefore, you need to confirm that your budget has the discretionary income available to make the monthly finance charge payments. These big-ticket consumer purchases will usually require some type of credit card or personal loan type of financing. One would advise you not to put these types of purchases on your credit cards if you are not able to pay them fully off within one to four months maximum. You don’t want to expose yourself to higher credit card interest rates and late fees if not paid off within four months. It would be better to apply for some sort of personal loan or financing from your bank. Your banks and credit unions can finance the cost of these purchases over several years at lower fixed interest rates, which would be a better fit for your budget. Consider financing them for 2 to 4 years maximum to keep the total interest paid reasonable. You will always have the option of paying off the loan in full early without any pre-payment penalties. This allows you to plan to replace any of your appliances before the end of their useful life expectancies. This is a good strategy for upgrading your large-screen TV, computers, and furniture purchases. These types of financing loan options also give you the flexibility to purchase or replace these items when they are on sale plus an additional percentage off. These are some of the related benefits of maintaining a very good to excellent credit score, cheaper less expensive financing. It’s always advisable to read all the appliance manuals for proper care and maintenance, to take the best care of your purchases, to keep them running efficiently and to keep them from premature failures. This is also a great way to build or increase your credit score. If you choose to purchase the household items without confirming your ability to pay for them and just go ahead and purchase them anyway, you are setting yourself for the possibility of failure. The lack of planning and budgeting to confirm you have adequate income are the primary causes of consumers’ lower credit scores and loan defaults. Purchases not budgeted have created financial challenges for those of you who need to purchase everyday home products from third-party subprime at higher interest rates. You become trapped in a vicious cycle of higher interest rates and monthly payments causing penalties, late fees, possible default, and ruined credit. The lack of planning can make your decision to upgrade household items prematurely, regrettable, and financial nightmares. There are many attractive marketing 0% Interest promotions from furniture and appliances designed to entice consumers into making purchases now and deferring paying for them for years to come. These programs are very appealing to those of you who are more impulsive buyers or think there are no other options. These advertisements imply a quick and easy way to own these items now and pay for them later or you can take them home and make minimum payments over time. If these promotions were truly honest, they should say, if the payments don’t fit your budget today, it probably won’t fit in your budget tomorrow or in the future either. These financing programs are backed by sub-prime lenders who are betting that a large percentage of those who ‘take advantage’ of these offers will default. Those who default will make these ‘Promos’ profitable to them. It’s a real win-win situation for retailers and lenders, but not so much for all consumers. You really need to read and understand the fine print of these contracts before you make your purchases. Take time to make sure you diligently research the lending companies and read their reviews from current and previous customers. Also, check with the Better Business Bureau for complaints and Consumer Reports reviews. This would be time well spent before the purchase and provide you with invaluable non-bias opinions on whomever you are considering financing with. If it’s an emergency failure of a refrigerator or freezer that’s different. Otherwise, you may have to sacrifice or cut back on some other monthly expenses by choice, such as dining out, concerts, or sports events until the purchase is paid off. This is where you have to determine if these purchases are ‘needs’ or ‘wants’. You need a refrigerator or stove, you may ‘want’ new furniture or a large-screen TV. Most people who are following the strategies and solutions outlined in this book believe if they can’t afford to pay for it now based on their budget, they need to wait until they are in a better position to make the payments for that purchase. Even if you had the money in your savings account, you may still choose to finance this purchase. You could be financing the purchase with a loan in order to continue building and raising your credit score to strengthen your credit history. One of the best ways to build your credit rating is to finance an item and pay it off over the term of the loan or earlier by making monthly payments on time. The example below shows how these deferred financing promotions entice you to purchase with a 0% APR Interest financing for twelve to sixty months. If you fail to meet all of the contract terms and conditions, or if you are late making or miss a payment you would immediately default on the loan agreement and become subjected to the huge negative extremely high-interest downside of the contract. These are some of the types of purchases ‘Soaring Toward Financial Freedom’ is teaching you to avoid. This new awareness steers you as far away as possible from these types of promotions. This book offers many solutions to better evaluate your current financial situation, so you are not tempted to travel down those enticing promotional roads and end up in a possible financial nightmare. The take-away point here is if you can’t easily afford to make the monthly promo payments now, how in heaven’s name are you going to be able to pay off the entire loan if you default at a much higher interest rate? So, let’s just not go down this road in the first place. Simple patience and understanding of your needs vs. your ‘wants’ and common sense are rare virtues that most people seem to lack and the most critical purchases which have the potential to cost them a fortune. Please plan and do the mathematical calculations ahead of time to the best of your ability to cost justify your financial decisions before you enter into these agreements without understanding the downside of the Promotions. Here’s an example: Even if you are a great swimmer, in the South America Rain Forrest you probably wouldn’t just dive into a body of water before you confirmed there weren’t any alligators, piranhas, sharks, electric eels and or any other types of carnivorous animals lurking in the water that could harm or kill you. It follows an old wise man’s logic when building a structure, “measure twice and cut once”. Once you make a wrong cut that piece of material is pretty much ruined for its intended purpose. You would need to start over with a new piece of material. This is why planning is so important, it eliminates the probability of you making the wrong financial decisions using all your financial literacy knowledge. A wrong decision can set you back lots of money because most people don’t have the financial savings to correct bad purchases. So, they ended up suffering the financial consequences of late fees, penalties, and high-interest payments. This is one of the primary reasons how people ruin their credit scores. More importantly, a negative hit on their credit rating lowers their credit score. Ask yourself, is the need for this purchase worth the probability of me jeopardizing my credit score? Please be honest with yourself, the following calculations will either confirm your need for this purchase or change your mind for the better. So, let’s now look at an example, it’s very similar to the other chapter’s chart illustration. However, it’s important to show how those 0% Interest APR Periods and Deferred Payment Option promotional offers will tempt you into making emotional decisions to buy now. If you are lured into the promotion without doing the math calculations for the total financial cost if you default, you are doing yourself a huge disservice. “It is much better to know before you go”! Most people never do the pre-calculations in advance, that’s why they get sucked into these ‘Venus Fly Traps’ of financing disguised as a great opportunity to buy, now. If you don’t know what a Venus Fly Trap is, research it, and ask your phone. As mentioned in an earlier chapter these promotions can roll into very high interest rates if you default on the Terms and Conditions of the Agreement of the Promotions. These interest rates can end up ranging from 29.99% APR to 39.99% APR if you are late on monthly payments, miss a payment, or default. Hard Goods Purchase 0% APR Financing for 12, 24, or 36 Months In this scenario, the Borrower isn’t required to make a minimum number of monthly payments during the loan term, and the loan must be paid off before the end of the loan term. If the borrower is late or misses a payment, they would be responsible to pay the loan balance back subjected to 34.9% APR interest. In this illustration, the Borrower misses a payment after making 12 payments on time. The Borrower should have been making equal monthly payments during the 0% APR Interest period loan terms until the loan is paid in full. If the Borrower is late on or misses a payment, they will be responsible to pay the loan back subjected up to 34.9% APR interest on the unpaid balance from the date of the missed or late payment principal for the rest of the loan term. In this illustration, the Borrow misses a payment after making 12 payments on time. By missing payment #12, the borrower will end up paying $1,257 more in interest on a $2,000 over thirty-six months versus paying 0% APR interest on the loan. On a $4,000 loan, missing the 12th payment you will end up paying $2,514 more interest than on the 0% APR interest loan over thirty-six months. Hard Goods Loan 0% Financing 36 Months Monthly Interest Total Options Loan Amount Months Rate Payments Paid Payments 1 2,000 36 56 0 2,000 2 4,000 36 111 0 4,000 Here's What Happens If You Default After Paying for 12 Months 1 2,000 36 35 84 1,257 3,257 2 4,000 36 35 170 2,514 6,514 Deferred Payment Purchase Program for 12, 24, 36, 48, 60, 72, or 84 months: In this scenario, the Borrower is required to make equal monthly payments during the Deferred Interest period term until the loan is paid in full. If the Borrower is late or misses a payment, they would be responsible to pay the loan back at up to a 34.9% APR interest on the full loan amount from the original loan date. In this illustration, the borrower misses a payment in the 12th month after making the first 11 payments on time. It shows the difference in how much you will have to repay if you default on the terms and conditions of the loan over 72 months. The loan was financed at 0% APR before the default period. If you default, the repayment on a $4,000 loan at 35% APR, and interest would be $4,613. For a total repayment cost of $8,613 for a $4,000 purchase. The loan interest repayment on a $8,000 loan at 35% would be $11,224 if you default, with a total repayment cost of $19,224. The penalty interest rates make it so that you end up paying back more than twice as much as the original item purchase price. Impulse purchases are always bad financial decisions and how folks ruin their credit scores and end up in Collections. These totals don’t include late fees and penalty charges. These are the consequences of purchasing large ticket items without planning and budgeting. You think you’re going to purchase an item(s) with no interest charges trying to take advantage of those enticing Special 0% Interest Financing programs. Deferred 0% Financing for 48, 60 or 72 Months Monthly Interest Total Options Loan Amount Months Rate Payments Paid Payments 1 4,000 72 0 56 0 4,000 2 8,000 72 0 132 0 8,000 Here's What Happens If You Default After Paying for 12 Months 1 4,000 72 35 134 4,613 8,613 2 8,000 72 35 267 11,224 19,224 If you find yourself getting ready to default on a ‘Promo 0% Financing’ program and you have any balance left on your credit cards this would be the time to use it. Your objective now is to ‘Cash Advance’ on your credit card balance to make the ‘Promo’ payment to keep it from defaulting to 34.9%. You will end up paying much less interest on the funds on the credit card. You can also consider cutting back or canceling cable TV services even if you have to pay Early Terminate Fees, ETF to create money to keep from defaulting. These options will save you from paying the penalties, fees, and the total interest cost of these ‘Promo’ programs. There are many fortuitous events that happen purely by accident that can occur during the years of 0% APR Interest Period and the Deferred Interest Period terms that would cause the borrower to default on the loan terms. The most obvious situation would be the loss of employment due to a lay-off, an emergency or illness, or major auto repair. The misconception of these ‘0% Promos’, is the longer the 0% period, the lower your monthly payments will be the easier it will be to make the payments. The truth is that the lower the term of your loan the higher the probability of you defaulting due to an unforeseen emergency financial event happening, such as a vehicle repair, new refrigerator, or medical accident. The Borrowers who don’t plan are almost guaranteed to default because they are usually making a ‘want’ purchase. These defaulted loans could have been avoided by planning, budgeting, and having savings and by exercising more discipline and a better awareness of your needs versus ‘wants’. Savings, who has savings? You do it by following the suggested solutions in this book, so you won’t be tempted to fall for these 0% Interest Promotion. Next, here are other lending choices many people use who are desperately in immediate need of money and or in financially stressful situations. They may fall into the traps of the next two loan solutions because they ‘perceive’ them as viable short-term loan options. These are definite No-Nos, under any condition, one more time No-Nos, do not partake in the next three super high-interest sub-prime lending options under any circumstances. They actually should be illegal. They are like a spider web, once you get into one of these loans you usually get stuck and become the food for subprime lenders ‘Spiders’. Their astronomically high-interest rate APR loans will suck you dry of all your money, and you may never get out from under them without huge financial consequences. Please stay away from type loans at all costs. It can be like trying to walk across quicksand with a piano tied on your back. Most consumers get stuck in that very expensive debt puddle, it’s extremely hard to repay them. Not an option, they will financially ruin you. What boggles my mind is people find ways to pay these loans back at 350% interest rates, but they won’t pay back family and friends who lend them money at no interest. What is wrong with this picture? First is the infamous Pay Day Loan described as a typical two-week loan used to help those living paycheck to paycheck meet their critical financial obligations that come up until their next paycheck. Your intentions are to borrow the money from a family member or friend to pay back the payday loan within the two-week period. The payday loan fees range from $10 - $30 for every $100 borrowed. Payday loans have fees of $15 to $30 equating to an annual percentage interest rate (APR) of almost 400 percent. For two-week loans, these finance charges can result in interest rates from 390% to 780% APR. Article: How Do Payday Loans Work? Payday loans have become the face of predatory lending in America for one reason: The average interest rate on a payday loan is 391% and can be higher than 600%! If you can’t repay the loans – and the Consumer Financial Protection Bureau says 80% of payday loans don’t get paid back in two weeks – then the interest rate soars and the amount you owe rises, making it almost impossible to pay it off. You may think a payday loan is the only solution for handling an emergency bill, or even paying off another debt, but the truth is, a payday loan will end up costing you more than the problem you’re trying to solve. It’ll add up to more than any late fee or bounced check fee you’re trying to avoid. Source: In Charge Debt Solutions The second is the infamous Vehicle Title Loan, which is a loan where the vehicle owner places their vehicle Title up as collateral for a small cash loan. These very high-interest rates have caused many people to lose their vehicles when they aren’t able to repay the loan. Third, are those same-day quick and easy ‘to the rescue loans’ when you have a financial emergency? These loans have very high-interest rates and fees making the real interest rate from 85.0% to 805.28% APRs. These are never good options even for consumers in an extremely desperate situation. If think you can find the money to repay these types of loans, it would have been much easier for you to find the money to pay the initial debt you are taking out this loan for. You may feel you have no other options, such as facing a default on a 0% interest APR ‘Promo’ loan, an eviction, the need to pay another vehicle’s monthly payment to avoid vehicle repossession or to keep their utilities from being shut off. Find a family member or friend and offer them the same interest for a small short-term loan and repay them just like you find a way to repay these subprime lenders ripping you off. Hopefully, you haven’t burned these bridges. If these debt loans are not paid by their due dates, it leads to serious penalties and interest charges. The interest APR rates are reported to be around 300% APR or an average interest charge of 25% per month. Then there are those TV ads for quick and easy loans with interest rates of up to 155% APR. These desperate borrowers haven’t explained the interest rate and penalties during the application process, and they don’t take the time to read all the terms and penalties. Article: What to Know About Car Title Loans - Car title loans, often just called title loans, also are short-term loans. They typically last 15 or 30 days. The loans use your car, truck, motorcycle, or other vehicle as collateral. They’re usually for amounts ranging from 25% to 50% of the vehicle’s value. To get a car title loan, you must give the lender the title to your vehicle. Usually, you need to own the vehicle free and clear, but some lenders will take your title if you’ve paid off most of your vehicle loan. The lender will want to see the vehicle, a photo ID, and proof of insurance. Many lenders also want a duplicate set of keys for the vehicle. If you get the title loan, you won’t get your vehicle title back until you repay the amount you borrowed, plus the lender’s finance charge and any other fees. Car title loans are expensive. Title loans usually have an average monthly finance fee of 25%, which translates to an APR of about 300%. Title lenders often add other charges to the loan amount, like processing, document, and loan origination fees. You also may have to buy add-ons, like a roadside service plan. If you have to pay added fees and buy add-ons, the cost of your loan will be higher. Source: Federal Trade Commission Consumer Information There is another retail marketing scheme to get those of you who have poor credit scores. They offer you the option to purchase furniture, appliances, and electronics without having adequate information regarding the total financing cost of the products. These are the ‘rent to own’ retailers who entice you to make purchasing products for only a $XX.00 per week payment. The numbers look small and affordable but when you multiply them by four, the monthly costs are much larger than you may be able to afford. When you multiply the weekly payments by 52 weeks it tells how much money you are committing to paying. If you are not careful, don’t plan and budget, this is yet another way to further ruin your credit. Be careful of those new ‘Lay Away’ purchase options called ‘Buy Now Pay Later’, they can easily get you into deep debt ruining your credit. There is also ‘Rent to Own’, please do it for an emergency purchase only. For you homeowners, there are those TV advertisements that tempt you to remodel your bathroom in just one day and remodel your kitchen for only $99 per month or no payments for two years. They don’t tell you the number of months of the loan or the interest rate. You will always be ahead of the game if you work under the premise ‘that nothing is free’, there is always some kind of way the vendor will make some money. Even those contest entries form for a ‘free’ three-day two-night stay at a resort, your personal information; name, address, phone number, marital status, and income bracket will be sold to other marketing companies for a profit. Please plan and budget these types of renovations, do planning and math to see if it fits comfortably in your budget before you sign a contract for the work. Take the time to read all the documents you are signing before you sign them and get a copy of all the documents before they leave your home. This will eliminate any and all opportunities to change the documents causing issues later. Make sure the purchase items and renovation work are needs and not ‘wants’, like a broken refrigerator or stove. Those of you with low credit scores that have to use subprime lenders are one of the leading causes of poverty. The ability to calculate the Total Cost of Ownership will make the total cost of the purchase fully transparent and can keep you from making many bad financial decisions. This is a practice you should do with all your major purchases ‘need’ and ‘wants’. Because you are paying too much interest for an item you don’t need. Most folks make these types of bad financial decisions because they don’t know any better and they don’t know how to calculate the ‘Total Cost of Ownership’ or TCO. If you are living a lifestyle of ‘wanting’ things, you don’t need and cannot really afford will surely put you on the roads through the ‘School of Hard Knocks’. Most people don’t learn anything and don’t change their bad behaviors when they attend the ‘School of Hard Knocks’. What is your current level of financial literacy? What are the consequences and costs of not having a basic level of financial illiteracy? It causes many people to unknowingly become victims of predatory lending, subprime lending, or fraud and very high-interest rates. The lack of financial literacy can lead to financial challenges, large amounts of debt, and poor financial decisions. This will result in the inability to repay your debt, a poor credit history, or bankruptcy which follows you for the rest of your lives. It robs you of the potential savings and wealth you should be accumulating during your employment years so that may have a more comfortable retirement. This all goes to express how extremely important it is for you to learn and have the necessary financial knowledge, and skills to pre-plan and budget your major purchases to confirm you can afford to pay for the items comfortably. The goal is to acquire and always maintain a good to excellent credit rating, so you don’t end up shopping for loans in the shark-infested pools of sub-prime lenders. Subprime borrowing is never a winning situation, it’s always a lose-lose proposition for you. The book’s financial knowledge, strategies, and solutions to money, credit, and finance management were put together to help you build bridges and clear paths to achieve your dreams. Take the necessary time to make plans to budget for your purchases, it may require sacrifices and behavior modifications, but it will keep you from making poor financial decisions. This way you can ensure that your financed purchases will have little if any negative impact on your ability to repay the loan and most importantly your credit score or credit report.