October is the time of year that my mind wanders into the macabre. I can't help it. It's Halloween time in just a few days and frankly, I have to admit that I love being a little bit scared. And really, don't we all? We pay good money to watch horror, gore and grizzly scary stuff in movies and at haunted hayrides, and so it just figures that we must love being totally frightened! But there is one area that I am seriously afraid of and I try to avoid like the plague, and that's combining scary stuff with money stuff.
Protecting my money comes in third on my short list of money priorities right after earning money and saving money. You would be horrified if you stopped for a second and considered the many ways people torture themselves making frightening and shocking decisions every day of the year. In the spirit of the season that is upon us, let me scare the living daylights out of you right now.
9 Really Scary Things People Do With Money
1. Payday Loans
This is such a scary proposition that it reminds me of the film Predator. You, the prey, borrow money at ridiculous interest rates from the monster. According to research, 70% of those who use these types of loans are first time borrowers with little or poor credit histories. To make things worse, they borrow to pay recurring bills like rent, mortgage and food. But the scariest part is that typical annualized interest rates on a two-week payday loan range from 391% to 521%! If borrowers can't pay those bills without a payday loan, they're likely to have the same fate as the victims in that scary movie. I know I don't want to be a trophy on some predator's wall.
2. Rent-to-Own Furniture and Electronics
Wow, this is such a bad idea that if you have ever considered it, I need to scare you straight. People who want or even need an appliance or furniture and plan to just pay weekly for it will be bleeding dollars until they're found in a pool of blood. These stores charge as much as triple the cost of items like sofas and televisions. You could easily end up paying $3,000 for a large screen TV that you could have purchased for $900 at a retail store. Warning…this is fatal to your financial health!
3. Out-of-Control Gambling
Having a little fun gambling isn't cause for terror. But 95% of experienced successful gamblers lose 95% of the time they play. And you're probably not one of the successful ones. When it becomes an addiction and you find yourself at the track, casino, online gambling site, and in the office football pool while you're losing your shirt daily, it's time to seek help. And I'm not kidding about losing your shirt. I had a friend who couldn't get his clothes from the dry cleaner because he'd lost every penny he had until his next paycheck.
4. Auto Title Loans
Auto title loans are short term borrowing secured by your vehicle as collateral. They are first cousins to payday loans and for the same reasons, they're a terrible idea. Yes, it's quick money, but so is selling body parts to get a quick buck. Do you realize that interest rates on these loans are ridiculous, often 25% or more? Plus there's typically a fee for the privilege of getting the loan. It can be a total disaster and you could even lose your car altogether, and you can run out of body parts quickly!
5. Loans to Family & Friends
While your intentions here are admirable, it's never a good idea to lend money to someone when your own finances are pretty frightening. Lending money to a friend or family member can turn them into blood-sucking vampires, so it should only be considered if the situation is dire and it can be documented as to how and when it will be paid back. Putting the details on paper and getting it signed is important. Many of these situations wind up in bitter feelings and lost friendships. Many end up in civil court as well. If you fear that you won't be paid back, and you can afford to take a loss on this benevolent gesture, you should just make it an outright gift or recommend some other method for the “borrower” to try and solve a temporary money situation. Otherwise, just walk away.
6. Too-Good-To-Be-True Investment Opportunities
I can testify firsthand how as a 25-year-old, I made an investment in something that was so stupid that I'm completely embarrassed. I can only write about it now because you can't tell me in person what an idiot I must have been, just like those teenagers who go back inside the house where Freddy Krueger is. I invested $10,000 in a scheme that wound up like something you'd see in a bad movie. I knew the person who conned me and he discouraged me from investing in his new venture, a “sports hall of fame”. My investment was to help pay for ceremonies that would be accompanied by lavish dinners and publicity to honor athletes from around the country. Well, I fell in hook, line and sinker and there were so many red flags it is almost comical looking back on it now.
I went to a large office in Manhattan to meet and give over my check (that needed to be made out to “cash”). Then I received a stock certificate, number #0001. But two weeks later when I returned, that office had vanished and no one could tell me anything about it. The next time I heard anything was about two years later when I saw on the news that my “friend” had been arrested for cheating 50 other people just like he did to me. By the way, I never recouped a dime even after the case was tried and he was convicted. But I did learn a valuable life lesson, the hard way.
7. Overdraft Fees on a Regular Basis
We all can make a mistake with our checking accounts. When it becomes habitual, it's time to learn why and make sure you are careful about how you simply throw away your money. Bouncing a check will cost you fees, and believe me, it isn't cheap. You may write a check for $25, but if it bounces, it will cost you an average of $35 in fees. It's like being in The Twilight Zone because that's more than the value of the check! It may also cost you penalties, interest and the like from the recipient of the check. Banks love it and it is a huge profit maker for them, so be careful and don't give your local bank any of your hard-earned money for free.
8. Carrying a Large Balance on Your Credit Card
You know that credit cards have high interest rates, as high as 25% on some cards. Paying the minimum every month on a large balance will cost you hundreds, even thousands of dollars in interest and will take you years to pay off. If you're using a large portion of your overall credit, or you miss a payment, it can affect your credit rating and come back to haunt you just like the ghost of Marley! If you have good credit, you may be able to use a balance transfer offer with a small fee and no interest for as much as 12-24 months. That's a way to save money but you'll need to pay more than the minimum per month and make paying your debt down a priority so you never get into that situation again!
9. Fees for Late Payments
And if that late payment is on a credit card, be prepared not only for the fee, but for them to jack up your interest rate as well!
Let's get real here. Most of your bills are recurring. You know when they are due. Why are you late? Are you forgetful? Are you a zombie??? Then pay online from your checking account and you'll be able to schedule payments in advance and never be late. You can even set up confirmations and bill reminders. You'll also save on stamps and envelopes.
On the other hand, if your payments are late because you're living paycheck to paycheck and can't stretch your income to cover your expenses, it's time to get serious with a budget. Although it may sound scary, having a budget will help you avoid situations like this and help you spend your money on what you really want.
There are probably some more chilling things that scare us to death when it comes to our money. What's on your fright list?
Image courtesy of huk_flickr on Flickr (with changes)