Buy Like Buffett

The best way to get a positive return on your money is by getting rid of expenses that eat up your money. One of the biggest cash eating expenses can be found in the rent-to-own industry. Companies like Rent-A-Center, Rentway, and Aaron’s Rents advertise that you can buy just about anything you need for a few dollars a week. It doesn’t even take credit to qualify. All you need is a job, a place to live, and references. This sounds too good to be true, doesn’t it? Well it is!

Renting To Own Will Leave You Flat Broke
Renting To Own - Since rent-to-own companies rent necessary household items (furniture, televisions, computers, washers, and dryers) to customers that unable to qualify for financing; they charge these companies exorbitantly high fees for the privilege of renting. Customers end up paying much more than the retail price of the item. This makes renting to own one of the biggest rip-offs going. $20 a week doesn’t seem like much until you realize the total cost you are paying. A $1,000 laptop will end up costing you over $3,000, just by paying $29.95 a week for 2 years. A $500 washing machine will end up costing you over $1,500 just by making a $15 monthly payment for 100 weeks. Companies like Rent-A-Center and Aaron’s Rents will have you paying three to four times the true cost of an item.

Renting To Own Is Just Another Form Of Predatory Lending
Renting to own is another form of predatory lenders. Just like with subprime loans, payday loans, and pawnshops lower income people are the ones being taken advantage of. Rental companies claim that they do not charge any interest but that is not true. By the time you add in insurance costs, contract fees, and the huge markup on goods, you will be paying an APR in the hundred’s. You just can’t win renting an item from a rent to own company. Companies like Rent A Center mark their products up at least 100%. So, even if you paid for your purchase in full on Day 1, you would lose money. Do you need more evidence that rent-to-own companies are predatory lenders? They have now gotten into the “financial services industry” as well. They now offer cash advances, check cashing, money orders, and prepaid debit cards. These are clear cut signs that these companies do not exist to help customers but to hurt customers.

Buyer beware! Your best bet is to stay away from rent-to-own companies.

Photo by: burningkarma

This is a good article from Farnoosh Torabi posted at CBS MoneyWatch on Picking The Perfect Credit Card For You.

Credit cards offer an array of tempting rewards as their issuers try to get your business.

But what types of cards are the best match for someone with your spending habits? And which cards lead the pack in each category?�

CBS MoneyWatch.com correspondent Farnoosh Torabi shared valuable insight, on “Early Show Saturday Edition.”

Click the link above to view the complete article.

I decided to google credit cards today and see what kinds of offers came up for individuals with poor credit scores. I was shocked by some of the offers that I saw. These cards won’t help individuals with bad credit improve their credit; these cards will only help their credit to get worse. These are some of the worst offenders.

Next Millennium Mastercard- This is a secured credit card which is supposed to allow individuals to rebuild their credit. I am normally a fan of secured cards for people with bad credit because the savings account keeps you from going over your credit limit. That is not true of the Next Millennium card. Next Millennium charges a $99.00 processing fee to open the account and a $59.00 annual fee. Numbers of people have complained to the Better Business Bureau about being charged the processing fee even though they did they did not fully complete the application. Other people have complained about mailing the company money and receiving no credit for their payments. The company’s contact information is hidden which makes it near impossible to contact them about their fraudulent practices. If you ever do receive the card your interest rate is a minimum of 19.5%. Next Millennium offers no grace period which makes it virtually impossible to pay your balance down to zero. This is probably the worst secured card on the market.

First PREMIER Bank- First PREMIER Bank offers the First PREMIER Bank Gold Credit Card, Centennial Card and the Aventium Card. First PREMIER’s motto is U + Premier are stronger together. So let’s say you believe this and apply for a First PREMIER card. Your initial credit limit is $250 before fees. What are the fees? As soon as you receive the card you are billed for a $95.00 program setup fee, $48.00 annual fee, $29.00 servicing fee, $84.00 monthly servicing fee billed at a rate of $7.00 monthly. Add all these fees up and your available credit is $71. But when you add in the servicing fee over a full year your available credit is actually $-6.00. That’s just the beginning of the fees. If you want to schedule autodraft payments that will cost you $11. If you receive a credit limit increase, you will be charged $25. Do you want to view your account online? That will be an additional $3.95. This card boasts the highest fees of any credit card. Based on all of the fees that First PREMIER Bank charges I am surprised that they do not send the card COD.

Since new credit card regulations are capping fees on these predatory lenders, they are going to lower fees and increase interest. First PREMIER is offering cards with an interest rate close to 80%. That’s just plain ridiculous. I would say its better to have no credit card then these cards.

The holiday season is the perfect time to discuss an issue that plagues just about each and every person, debt. During the Christmas season we use credit cards to charge electronics, toys, games, clothing and various presents. Many people buy items that they cannot afford or may not even need due to the allure of “discounted” prices. Bills created at Christmas don’t just last during the Christmas season; these bills last year round. People spend 11 months or more paying off bills created over the course of a single month. Excessive buying at Christmas causes many individuals to declare bankruptcy in the first three months of the following year.

So how can you avoid the debt trap during this holiday season? Follow these simple debt solutions.

1. Have a plan and stick to it.

Before you hit the malls set a predetermined spending limit. No matter what happens do not go over your spending limit. Department stores and retail outlets count on shoppers making impulse purchases during the holidays. Avoid the impulse to buy items not on your list.

2. Stick to “cash only” purchases.

Only purchase items that you are paying for by cash or a form of cash. Debit cards, bank cards and check cards work well because they will typically keep you from spending more money then you have in your account. Remember you don’t have to pay interest on money that is yours.

3. Minimize the dollar value of gifts.

Don’t be Scrooge but be frugal! Remember Christmas is about giving, not about how much money you spend on presents. Allocate a specific amount to each person’s gift that won’t wind up putting you in the poorhouse in the New Year.

4. Avoid store credit cards offers.

One of the best ways to solve debt problems is by not creating any new debt. Stay away from store offers that promise huge discounts for signing up for a charge account today. These offers exist to entice you into spending money that you don’t have. 15% off sounds good during the holidays but it doesn’t sound so good when you are paying 23% interest on the bill in January.

Follow these simple steps and you can plan to go into next Christmas debt free.

The current economic recession has taken its toll on homeowners in the United States. Property values for the 1st quarter of 2009 in the US were down an average of 14% over the previous year. This is after a decline of almost 10% last year in median home prices. States such as California, Florida and Nevada have been hit even harder by rising foreclosures and the limited availability of credit. Housing prices have dropped over 25% in these states and continue to plummet with no end in sight. Economists estimate that US home prices will decline another 10 to 15% before bottoming out.

The global financial crisis has hit the UK as well. According to research by PricewaterhouseCoopers (PWC), the credit crisis has wiped £1.9 trillion off the average level of UK wealth since 2007. Whilst the amounts vary considerably, PWC believes that this equates to a reduction of £40,000 for every UK adult over 18. This figure doesn’t even take into account the millions of retired people, not to mention those residing abroad, who no longer receive the income they once did due to falling interest rates. Economists estimate that over 50 trillion dollars of wealth was lost in 2008 alone. That number is staggering! The loss in asset prices was led by the decline in property values.

This is especially troubling because the average person’s wealth is tied up in one major asset, their home. Millions of people rely upon the equity in their homes to maintain their standard of living. Home equity loans are used to finance college educations, automobile purchases, medical costs and etc. As housing prices have declined many people have found themselves unable to borrow money from their homes to purchase needed goods and services. As a matter of fact many individuals that have purchased a home over the past 5 years may be surprised to find themselves “upside down”. This is when you have negative equity in your home and you actually owe the bank more money then you can sell the house for.

As foreclosures are rising, banks are lending less and tightening credit standards which is making capital scarce. Therefore consumers have less disposable income and are shopping less thus resulting in massive layoffs at corporations. These unemployed workers are unable to make their mortgage payments leading to more foreclosures and the cycle continues. Even local governments are feeling the pain of declining home values. State governments are collecting less property tax revenue and are having to layoff employees and cut essential services.

At a time when banks are losing money due to toxic assets, they are dropping the hammer on the already pressured consumer. The credit card divisions of the major banks in the US are trying to make up for loan losses by increasing credit card interest rates. Banks are raising rates on customers regardless of payment history. Customers that pay on time have seen their credit card rates go up as much as 5% annually.

I find this behavior totally unjust. They should not be punishing customers who pay their bill to cover losses from customers who do not. This is a terrible business practice. So what can you do about it? 

1. Stop using the card immediately. You don’t want to have future charges at the higher interest rate.

2. Write a letter. State your displeasure with the higher rate and request a lower rate. I used to call but calling can be a hassle. I found myself transferred to different customer service reps each time who knew nothing about my case. I write a letter when I have a complaint so that there is written documentation on file. I have gotten better results by writing a letter.

3. Be prepared to leave. A lot of people threaten to leave their credit card company but do not follow through on it. If your credit card company refuses to lower your interest rate, it may be best to leave. They obviously do not value your business and you would do better to go elsewhere. Most credible companies hate to lose a loyal paying customer.

4. Transfer your outstanding balance. If you have a solid payment history and decent credit score you will find a better rate. Check out websites such as bankrate.com. They offer lists of credit card companies nationwide and their current interest rates.

I have read numerous books and articles that detail the difference between good debt and bad debt. Television financial experts tell us that debt is not a bad thing. That its all about how you manage debt. We have been taught that good debt is borrowing money to purchase something with the expectation that the price will rise. Home mortgage loans, student loans and business loans are examples of good debt. Conversely, we are taught that bad debt is borrowing money to purchase something that will depreciate in value. Auto loans and credit card loans are examples of bad debt. I have a different point of view on debt. I think that there is basically no distinction between good debt and bad debt.  All debt is bad debt. There is no such thing as good debt. Any form of debt is a liability that must be repaid. Debt can turn into an albatross that stays with you for years and years and years.

Money that is borrowed must be repaid at a specified interest rate regardless of the value of the purchase. There is no guarantee that an asset purchased through the use of credit will appreciate in value. There are countless examples of this type of situation. Individuals that bought homes during the housing boom because they believed that real estate could only appreciate in value. individuals that purchased stocks on margin because they believed that the stock market would only increase in value.

Am I saying that it is never worth using debt for things such as financing your education or purchasing a home?  No, I just want us to rethink our views on using debt.  Situations may arise where we have to use debt to pay for a necessity. But that still does not make it good debt. The only people that debt is good for are the lending institutions. Capital One, American Express, Bank of America and JP Morgan Chase are some of the biggest beneficiaries of our use of “good debt”. Sometimes I think about the headaches that I could have saved myself from by not relying on so called good debt.

1) Renegotiate your high interest rate loans.

High interest credit card debt can be renegotiated with your credit card company. You can call your credit card company and negotiate a lower interest rate. If your company refuses you can threaten to transfer your balance to a lower interest credit card. Many times this will make the company grant your request. Credit card companies do not want to lose your business to a rival company. If that doesn’t work then transfer the balance to another card with a lower rate. High interest automobile loans can be refinanced at your local credit union in as little as nine months. Lowering your interest rate from 18% to 8% is the same as receiving a 10% return on your money. It allows you to keep more of your own money.

2) Live within your means.

Attitudes and habits that condone overspending can really hurt your future goals of achieving financial security. Habits such as spending money consistently on new clothes, shoes and jewelry. You would be surprised at how quickly entertainment expenses such as buying movies, music, going out to eat add up. Always having to have the latest car for example can also hinder your ability to save. These types of habits will keep a person debt ridden for years. Too many Americans already live paycheck to paycheck. It is critical to adopt the perspective of having your money work for you. Whenever you save, your money is earning interest and working for you. Whenever you are spending, you are working for your money. Always remember that just because you have the credit to pay for something does not mean that you can afford it.  

3) Never pay the minimum.

Paying only the minimum will keep you in debt for years. It also ensures that you will pay thousands of dollars in interest to your credit card company. For example, if an individual with an $8,000 credit card balance at an 18 percent interest rate makes only the minimum payment. It will take him over 30 years to pay off the balance. Paying an extra $20 or $30 per month can greatly reduce your balance over time.  Remember that you only agree to pay back the principal when you borrow money; never the interest.

4) Watch out for hidden fees.

Lenders make a fortune by charging fees to consumers for any violation of the account agreement. These fees are typically located in the small print of your agreement. Companies charge fees for late payment, overdrafts, account maintenance, inactivity and more. Be sure to read your agreement carefully to avoid hidden fees. One late payment can change your interest rate to the highest rate allowed by law.

5) Create a safety net.

Remember to save money while you are paying off your debt. Sometimes people will pay their debt off and have no remaining cash. Then they are forced to begin using their credit all over again. The best way to create a safety net is to make a firm commitment to save a certain amount of money each month. Pick an amount that you will be able to stick to each month. A good rule of thumb is to begin by saving 10% of every dollar that you receive. Automatic deductions to these accounts can ensure that you make regular contributions at the same time each month.