PayPal encouraged me to pay with my bank account rather than my credit card as I was setting up a subscription payment last night.  When I first setup the subscription in PayPal it defaulted to use my bank account as the funding source.

I wanted to switch it over to use my credit card just in case the subscription payment was due and there was no cash in the bank account.  In my case it wouldn’t be that I didn’t have the cash, it just might be in another account.  So rather than have the payment not go through, I set it up to use my credit card as a funding source.  Plus that buys me another few weeks of time I can hang onto my money before I actually have to pay for it.

When I attempted to change my funding options from bank account to credit card, PayPal prompted me with the message below:

You’re choosing not to pay with a bank account. Please note that both bank account and credit card payments are sent instantly, and account numbers are never exposed to the merchant.

 

You’ll also find that transactions paid with a bank account:

 

    * Will not accrue credit card finance charges.
    * Let you stay in control of spending and avoid credit card debt.

 

No matter how you pay, you get 100% protection against unauthorized payments sent from your account.

 

Do you want to make this payment with your bank account?

I went ahead and choose the credit card option but thought it was interesting that PayPal is discouraging the use of credit cards and encouraging paying with cash using this approach.  Perhaps it’s to avoid paying fees to the credit card company for processing?

I’ve been to plenty of brick and mortar businesses where they don’t take credit cards to avoid the fees but whatever the reason, this is the first time I’ve ever seen something like this online before.  Have you ever had a business or payment processor encourage you to use cash over credit online?

Payday loans can bleed you dry.  For example, here’s a recent comment from reader Cheryl:

“We started out with Payday Loans when we hit financial bottom when I lost my job. We had just moved with a larger mortgage, plus have 2 kids at home to feed.

 

We now have 6 Payday Loans that are killing us. I’m laying awake at night worrying. We pay one off and it seems something else comes up. Id go without food and eat cereal to pay them off, but I have 2 teenage boys who eat all the time and I even bulk cook and freeze things for them.

 

No junk food, pop etc. I home cook meals every night. It is such a hole to get in, and so frustrating when you cant get out. Our credit has hit rock bottom now.

 

We have considered bankruptcy since some of our other bills have suffered now also. Ive heard you can file against Payday loans, but where will I get the money to file?”

Cheryl, I don’t know how much your loans are for or what interest rate you’re paying on those loans but I do know that the rates on payday loans can be insanely high, higher than any credit card.  As you’ve experienced, the interest accumulates so quickly that your payments go towards the interest, making the original loan difficult to pay off.

If some of the loans are bigger than others you could use Dave Ramsey’s Debt Snowball method of paying off the lowest balance loan first, then once it’s paid off apply the payments you were making towards the next highest balance.  One possible way to raise money to pay off that first loan is to get together some of your personal belongings and sell them on eBay. 

Of course from a pure numbers perspective, it would be good if you could consolidate all of those really high interest loans into one loan at a lower interest.  However, you mention that your credit is bad so you may not be able to find a bank or credit card that will give you a line of credit.

Alternative sources of loans such as Lending Club are useful for some people but if your credit is really bad that won’t help much either.  If you have family that’s willing and able to help out, you could look into borrowing money from them through Virgin Money USA.

Since it sounds like you’re struggling with paying a bigger mortgage without your job, I’d contact the National Foundation for Credit Counseling.  The NFCC has credit counseling, home owners counseling, and bankruptcy counseling all of which may be of some assistance to your family.  Good luck!

The struggling economy has left many people facing the potential of foreclosure and has created a wave of scam artists that are taking advantage of the fears of desparate homeowners. The Federal Trade Commission is on a mission to help stop foreclosure rescue scams around the country.

Here is the FTC Chairman Jon Leibowitz’s warning about avoiding foreclosure scams:

“These con artists see the high foreclosure rates as an opportunity to prey on people in distress,” FTC Chairman Jon Leibowitz said. “They promise to rescue homeowners in troubled financial waters, but after they take their money they throw them an anchor instead of a lifeline. People facing foreclosure should avoid any company or individual that requires a fee in advance, guarantees to stop a foreclosure or modify a loan, or advises the homeowner to stop paying the mortgage company.”

It’s a sad article, it tells of people who paid companies a fee to stop foreclosure and then lost their homes because the company never had the intention or ability to help the homeowners.  As part of their campaign against the scams the FTC created the public awareness video below where they talk to homeowners who have faced foreclosure and had to deal with the decietful companies.

When money is tight, it’s tempting to turn to quick fixes but some of them can have lasting consequences for your money and your future. Obviously times are tough and many people are faced with decisions they thought they’d never have to make but here are three money traps to watch out for.

Cashing in your 401(k)

You may be tempted to claim the money in your retirement plan to pay off debts or fund a major expense. If you do, you will not only affect your future, but you may lose a big chunk of money in taxes and fees. When you cash in your 401(k) early, a substantial portion of the funds are diverted to pay for income taxes as well as penalties for early withdrawal.

Consolidating Credit Card Debt into a Home Equity Loan

Combining your high-interest loans into a single low-interest home equity loan may seem like a wise move. But unless you also cancel your credit cards and stop overspending, this consolidation of debt may simply allow you to build even more debt. And if you fall behind in the payments on a home equity loan, you will lose your home.

A better approach is to cut back on your spending and use the money you save to pay off credit card debts. If you are having trouble meeting the payments on loans, call your creditors and explain how your financial situation has changed. Set up a payment plan that you can live with.

Payday Loans

Although payday loans may be easy to come by they usually also carry outrageously high interest rates. They will only put you deeper into debt so avoid them like the plague.

Debt can ruin a marriage, so how can you beat debt before your wedding day? Although you many not be able to eliminate debt before tying the knot, there are things you can do to prepare for debt in married life.

Dating and Debt

When you get married, your two families become one and so do your personal finances–the good and the bad. It’s important to find out what your spouse-to-be’s likes and dislikes are, and it’s just as important to find out about their personal finances.

Uncover this information while you’re dating and hammer out your plans for the future during your engagement. Waiting until you’re married to discover bad financial habits and low credit scores can add financial stress to your relationship.

How to Talk About Debt

Money is one of leading causes of divorce so talking about your finances should rank as a high priority. You don’t want your marriage to end before it begins, so make time to talk about finances with your significant other.

Share the debts and expenses you have and ask what debts and expenses they have. People are often embarrased by or ashamed of the debt they’ve accumulated so if you explain your financial situation first then they’ll probably feel more comfortable sharing.

Financial Behaviors

You can also learn a lot by watching spending habits and observing certain behaviors. If they always pay with a credit card rather than cash or a debit card, this may be a red flag of credit card debt. Inquire if they pay off the balance on their card each month.

Of course he might put your mind at ease when he says he uses his credit card to earn points, but he pays off the balance in full. Or a red flag may wave if she says she only makes the minimum payment each month.

A fiancee that never seems to have money is another sign of a problem. It may be a sign of living beyond their means–spending more than they’re making. The way to get to the root of the problem is to ask the questions that give you the answers you need. Before you marry someone, you need to know everything about them including income, expenses and credit history.

Credit History & Debts

When you’re married, your credit history, credit scores and debts affect your ability to make major purchases. If your partner has a bad credit score and you’re buying a house, lenders may require a higher cash down payment or charge you a higher interest rate. It can even cause you to get denied for the mortgage.

In the current economy, credit scores and credit history play an even bigger role than ever before. It’s important that you enter into marriage with full knowledge of the debts and credit history that comes along with your spouse. It affects your ability to reach milestones in your relationship, such as buying a home, and your day-to-day finances.

Avoid Wedding Debt

Definitely avoid starting your marriage in debt because you threw a wedding you couldn’t afford. You can have a wonderful wedding and still be conscious of the amount you’re spending.

Throwing a smaller more intimate affair is back in style. This helps couples to save money on everything from the venue space and the number of invitations to the food and beverages served at the reception.

Shopping for gently used wedding dresses at high-end consignment shops or borrowing gowns from friends and family members help brides to save thousands of dollars on buying a new gown Remember you only wear it once.

Marriage & Debt

Finances are a leading cause of divorce because money problems can cause fighting and stress that trickle into the other areas of your marriage. If you go into your marriage with your eyes wide open, you can alleviate this problem in your marriage. Talk about your finances with your fiancée before you get married. Don’t dwell on the past and hold it over their head.  Instead make a plan for how you’ll handle your finances going forward together!

This post on debt and interest rates is part of a series on credit and debt in marriage.  You can also read about credit scores and interest rates, improving your credit score, and
free credit reports.

Filing for bankruptcy can eliminate or reduce your debt but there are major consequences you should be aware of before you file for bankruptcy. Unmanageable debt is a huge problem in the U.S., bankruptcies totaled over 1.1 million last year; a 31% increase from the previous year.  Here is a look at the two most common forms of personal bankruptcy, Chapter 7 vs Chapter 13, and what they mean for your finances.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the most common type of bankruptcy for individual filers, the epitome of what people think of when they hear the term “bankruptcy”. Chapter 7 is basically a liquidation of all your assets that aren’t protected against creditors during bankruptcy proceedings.

In some states like Florida, the judge cannot force you to liquidate your principal residence if you are in good standing with your mortgage; however that is not the case in all states. With Chapter 7 your assets are liquidated to pay off your debts.  Any remaining debt not covered by the sale of your assets is no longer your responsibility; your debt slate is “wiped clean”.

I don’t like that term, because there is nothing clean about bankruptcy. It is a long, painful process and it tarnishes your credit for many years to come. Also, keep in mind that federal student loans never go away since judges cannot dismiss federal student loan balances. 

Chapter 7 bankruptcy is like starting over with your financial life, but the consequences for starting over are that you lose your possessions and you have a big asterisk on your credit report for the next 10 years.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a reorganization of your debts supervised by a federal court; basically a way to renegotiate your debts and come up with a plan to repay them. Unlike Chapter 7, the debts are not dismissed by the court. Instead, your attorney and the judge work out a repayment plan to get you out of debt. In some cases the reorganization involves a reduction of the debt you’re required to pay but the debts are not completely eliminated.

Once your lawyer has negotiated the terms, you start paying monthly installment payments to a trustee appointed by the court and they distribute the funds to pay off creditors. In order to file for Chapter 13, you must show that you have income coming in on a regularly or fairly regular basis. How much you earn will determine the length of time over which they structure the repayment plan.

There are debt limits for Chapter 13 bankruptcy, if your debt is higher than a certain amount then the current laws won’t allow you to file for Chapter 13.

Chapter 7 vs Chapter 13

The advantage of chapter 7 is that you start over with no debt. Obviously a big disadvantage of chapter 7 is that creditors will take anything and everything they are allowed to get their hands on to pay off as much of your debt as possible before the courts wipe away the rest of it.

Of course, if you’re so deep in debt that you could never pay it all back you may be willing to sell everything you have to be free of it. A recent CNN Money article describes Chapter 7 as “often the best option for consumers saddled with insurmountable debt”.

Not having to sell all of your possessions is the upside to Chapter 13. One big advantage of chapter 13 for home owners that can work out a repayment plan with their bank is that you can keep your house.  Another benefit is that a Chapter 13 stays on your credit report for a shorter time period than a Chapter 7; although they will both ruin your credit until they fall off your history.

Filing for Bankruptcy

If you are considering filing for bankruptcy, remember it is one of the biggest financial decisions you’ll ever make. The CNN Money article cautions against filing for bankruptcy without first doing your research.

“be wary of any potential conflicts of interest from credit counseling agencies or bankruptcy lawyers that could potentially profit from your position”

Not only should you consult with an attorney, it would be smart to talk it through with close friends and family.  Another suggestion is to sit down and talk with people that have gone through a bankruptcy filing to hear their experience and what they learned from it.

Alternatives to Bankruptcy

As we’ve covered, bankruptcy is not an easy solution to getting out of debt.  There are definitely other options you should look into before considering filing for bankruptcy.

Negotiating with Creditors – Your creditors would rather recieve a portion of the money you owe them than none of it so they may be willing to work with you.  You can call the companies you owe money to, explain your situation, and try to work out a payment plan that will allow you to pay off the debt rather than simply defaulting on it.

Credit Counseling – The surge of debt problems in the U.S. has given rise to many credit counseling organizations that can work with you to help address your debt.  A lot of them have education options where they’ll show you how to better manage your money and some of them will help you negotiate with your creditors.

Not all organizations claiming to be credit counselors have your best interest in mind, beware of fraudulent debt reduction companies. The US Trustee Program can help you find credible credit counseling services.  The Trustee Program is:

“the component of the Department of Justice responsible for overseeing the administration of bankruptcy cases and private trustees under 28 U.S.C. § 586 and 11 U.S.C. § 101”

They have a portion of their website dedicated to credit counseling & debtor education information where you’ll find a list of approved credit counseling agencies.

Borrowing from Friends & Family – You can’t borrow your way out of debt but if you need some money to get through a tight spot one option is borrowing money from people you know.  It’s certainly a tricky proposal that could ultimately ruin a relationship if not handled properly.  However, if both parties are up front about what’s expected and responsible about meeting the agreed upon terms it could be a workable option.  Here’s an article about borrowing money from family.

Resources

• Approved Credit Counseling Agencies
• Credit Counseling Frequently Asked Questions
• Approved Debtor Education Counselors
• Choosing a Credit Counselor

Have you decided it’s finally time to take charge of your finances and work on a plan to get out of debt once and for all? If so, congratulations! The bad news is that it may take a while to dig out of your debt hole, the good news is there are dozens of options available to help you through the process.

Debt Consolidation

One of the options you may be considering is debt consolidation; a process that allows you to consolidate your high interest balances into a lower interest loan. This is a popular method of debt reduction due to the fact that you have only one payment to make versus multiple payments throughout the month. Additionally by consolidating into one lower interest loan more of your payment will be applied toward the principle loan amount, therefore not as much money will be wasted on interest.

Unfortunately in today’s economic climate qualifying for a loan to pay off your high interest debt may be challenging. For people who feel debt consolidation is the right answer for their debt elimination plan, social lending networks might be an option to consider.

Social Lending

Social lending networks such as Lending Club offer peer-to-peer (p2p) lending for individuals who qualify for personal loans. The concept is simple enough, borrowers can apply online for personal loans at a lower rate than offered by more traditional lenders (banks, credit cards). In turn lenders can help borrowers while seeking attractive returns.

How does Lending Club work?

If you are looking to consolidate higher interest loans you can apply online and instantly view the interest rate you qualify for. As part of the loan application you will have to provide your social security number and other identifying information in addition to meeting certain credit qualifications. Qualifying borrowers will have their loan request listed for a two week period in which lenders have the opportunity to select requests to fund. If at the end of the two week period your loan is not funded you can either re-list the loan or accept partial funding if it has been offered. You can see the full application process explained in this Lending Club review.

Lending Club Terms and Fees

The loan amount is set to fully amortize over three years with monthly payments to include principle and interest ranging from 6.69%-19.37%. Once you submit your loan request it will be assigned a Lending Club “grade” which correlates to a predetermined interest rate. As with many other types of loans a borrower can expect to have processing fees (determined by the grade assigned to your loan) as well as unsuccessful or late payment fees if your payment is not honored by your bank or paid late.

Social lending vs Traditional loans

The main difference with peer-to-peer (p2p) lending seems to be the loss of the middle man. When you remove the middle man- traditionally a bank- less money is lost in the transaction to cover the profit for the financial institution. While there are some processing fees involved both the borrower and lender can benefit financially by using this system.

Trisha Wagner is a freelance writer for DestroyDebt.com, a debt community featuring debt forums. Trisha writes regularly on the topics of getting out of debt and personal finance.

Growing up as part of the MTV generation, I always thought of MTV as a source of entertainment that had an anti-establishment edge.  The videos they showed always seemed to push the envelope and were, in my mind, a good commentary on some of the latest trends in the youth culture. 

Now MTV is using their clout with the younger crowd to help start a discussion about fiscal responsibility.  Not very racy or controversial but definitely an important topic for college students. 

With a tagline of “We’re broke, let’s fix it”; they’ve launched a website for college students called Indebted. The partnership with the Peter G. Peterson Foundation has a goal to:

“raise awareness about the dangers of excessive personal and government debt, and to promote action to help stop the fiscal crisis in the U.S.”

How will they get college student’s attention?  Here are some of the dire facts they list on the home page:

• College students today have to spend more than double what the previous generation spent on tuition – and tuition costs keep going up.
• 15 years ago, half of college students graduated with student loans – now two-thirds of them do, with the average student loan debt being around $20,000.
• On top of individual debts, every American is carrying a burden of about $184,000 in government debt and unfunded obligations.
• Tax rates will have to more than double in our lifetimes for our country to get by.
• With increasing government and personal debt, young people today are set to be the first generation that won’t enjoy the same growth in standard of living as their parents.

I’m glad MTV is trying help to educate college students about debt and financial responsibility.  It may not be much help for the college senior who’s 50K in debt, but it could certainly help the incoming freshmen.

We all know someone who has been hit hard by the economic downturn. Whether it’s losing a job, losing health insurance, or losing thier house many people find friends and family members in financial touble and in need of help. 

Lending money to family and friends is a delicate mattter, this article from the Financial Planning Association takes a look at alternatives to lending them money, how you can help them make a plan to pay you back, and a few legal and tax considerations.

Plan the talk first:  Remember that this situation is as much about the relationship as about money. The decision to help a family member with money problems requires understanding – lecturing tends not to work so well.

But it’s right to encourage the people you want to help to look at their financial situation and if they are in debt trouble of any kind, they should get help. It’s also important that you support them emotionally and have confidence that they will make it through this.

Consider whether you can make monetary support a gift:  Actually, this is a good first question in any scenario where you offer help. What happens if you don’t get the money back? For the sake of the relationship involved, it might make sense to think through that possibility.

Would the potential loss of money injure you, and worse, will it injure the relationship? If you don’t think you will be repaid would you be willing to consider it a gift?

Making your support a loan: There are good and bad aspects to private loans. The good news first:

• Terms can be significantly friendlier than what a borrower would qualify for in the open market. For example, the interest rate you charge on the loan can be lower than the borrower would pay a commercial lender. 
• You can require little or no collateral. You may also choose to require little or no collateral, and you may want to extend the repayment period longer than a bank normally would offer.  
• It’s a way to keep money in the family.

Remember, if you ask a lower interest rate, you need to understand that you are making a gift to the person of the amount of the “forgiven” interest.  This amount can be deducted from the annual gift exclusion limit.

Downside to private loans: A poorly written agreement can lead to missed payments or default. For example, if the borrower dies suddenly, the lender’s investment may be lost if the agreement isn’t structured correctly. A properly executed promissory note is still an obligation of the estate, and may continue to be paid to an heir or other person or entity based on the terms as agreed. In addition, relatives cannot say they weren’t treated fairly.

One alternative to lending the money yourself is to help them get started with a loan listing on a peer to peer lending service like Lending Club.

The best arrangements are formal:  Lending agreements should be written in proper legal language, notarized and recorded in the county where the property resides. A financial planning professional can talk to both parties about what such loans – particularly real estate loans – can mean for their respective finances.

One service that can be used is Richard Branson’s Virgin Money, a social lending organization that helps facilitate loans between friends and family, they can help you with the correct ways to document the loan transaction over time for tax purposes.

Are there nonfinancial solutions?  There are other solutions besides writing a check. You may consider opening your home to family if they lose their housing or helping them maintain their home if they can’t afford much beyond their mortgage and other bills.

These are not small decisions and will lead to some financial sacrifice on your part – rising utility and food costs will increase your burden. You’ll definitely want to revisit your household budget before you make this commitment.

Help them set a plan:  No matter whether you offer a gift or a loan, you might want to work with them to develop a plan that will either return the money to you or put them back on their feet, or both.

Set an endpoint: The thing about blending unconditional love and money is that it can be tough for both parties to move on. It might be wise to set a particular endpoint for financial support at the beginning so both parties know the clock is ticking on a solution.

If you’re providing housing, loaning a car or providing some other non-financial support, it also makes sense to put an expiration date on that assistance so it doesn’t become a permanent situation.

Have friends or family come to you for financial assistance?  How have you handled their requests for help?

I ran across an article on CNBC about the top 10 hidden costs associated with the holidays, and it struck a chord with me, because I often overlook these expenses during the holiday season. Here is the list from the article and my take on each of them.

1. Holiday meals/gifts for hosts/entertaining

My wife and I just bought a house, and we wanted to utilize the holidays as a way to show off our new pad. So, we planned a Christmas party, then agreed to have the family over for dinner on Christmas day, and then we invited friends to hang out at our place for New Year’s Eve. We sat down and planned out each of the events the other night, and the expenses associated with entertaining were something we did NOT plan for two months ago.

2. Holiday cards/wrapping paper

This is never a huge expense for us, because we buy wrapping paper from the dollar store, and we spend very little on holiday cards. For holiday cards, snap a photo of you and your family with your digital camera. Then, upload the photo onto the website of your choice that develops digital image files. Then, choose a Christmas background border, and you are done. We spent about 60 cents to a $1.00 per holiday card last year.

3. Holiday travel (airfare, hotel, gas)

Holiday travel is the worst. We try to avoid it if at all possible. The most we might travel on Christmas is a two hour drive to my hometown. I don’t consider this one a “hidden” expense, because most people plan for these expenses well in advance.

4. Holiday decorations

Ugh, this was another one that trapped us. We have a house now, and of course we want to decorate it like it’s Santa’s workshop. But, we resisted the temptation to go overboard, and we will be waiting until after Christmas to get all of our decorations at 50 to 75% off. We’re okay for waiting until NEXT year to make our house look like the North Pole.

5. Shipping/postage

This one catches many people off guard. When you are sitting down and coming up with a gift budget for each person on your list, make sure you include the cost to ship the gift. So, if you budget is $50, don’t buy a $50 gift and spend $15 to ship it. Multiply that by 10 more people on your list and you will be wondering where all of your money went.

6. Clothing/holiday party outfit

If you buy a new outfit specifically for a holiday party you’re cutting into your gift giving budget.

7. Electricity for holiday lights

Most Christmas decorating veterans factor in their budget that their electric bill will be astronomical in January. The new LED lights provide some electricity savings, but the main thing is to not go overboard with your lights. Does your house really need to be seen from outer space? Be tasteful and purposeful with your light decorations. Your house will look better and you won’t annoy your neighbors so much.

8. Additional childcare/pet sitting

This is a big expense during the holidays that many people overlook. Factor in a couple hundreds dollars extra for childcare and pet boarding if you have children and dogs and/or cats.

9. Charitable contributions

Make sure you factor in your charitable giving into your budget. This would be anything above and beyond you already give throughout the year.

10. *BONUS* Gift for yourself – but only if you can afford it!

Gift for yourself? Please! You might be able to convince your spouse into buying a “family” gift, but it’s tough to justify a gift for yourself during the season of giving! Can you think of any other hidden expenses that you might incur throughout the holidays? Share your thoughts with us in the comments section. The holidays are all about planning, and if you don’t plan, you’ll start whipping out the plastic. Don’t let yourself have a credit card hangover in January. it’s not too late to plan for your upcoming expenses in the next two weeks.