The people in TV commercials can seem so kind, so understanding, so genuinely concerned about you. Need a little extra cash in advance of your next paycheck? No problem! Need help repairing your credit? No problem!
Well, actually, there is a problem. The services being offered in most of these ads are not in your best interest at all. To protect yourself, consider these tips.
1. Payday loans often hurt rather than help. These loans let you borrow a few hundred dollars against your next paycheck for a short window of time. The catch: Lenders will charge you anywhere from $15 to $50 for every $100 you borrow, and you may face sky-high annualized interest rates in the 400 percent range. You could quickly find yourself trapped in the cycle of taking out one loan to cover another.
2. Be wary of home-equity loans touted on TV. Ads for no- and low-down-payment mortgage and home-equity loans imply that it’s generally no longer possible to get such loans through regular lending institutions. That’s not true, though. What’s more, borrowing against your home can be risky if you’re strapped for cash.
3. Don’t fall for “rescue” offers from law firms. Have you seen the ads where lawyers offer to help you file for bankruptcy or sue someone over a personal injury you’ve suffered? If you call the 800-number advertised, you’re likely to reach a national firm that handles cases all over the country. Personal service is likely to be limited – not good when you’re dealing with such serious issues. You stand to get better help through a local lawyer or financial planner.
4. Don’t relinquish key income streams too easily. Other ads promise “cash now” to people who agree to sell or borrow against their annuities or legal settlements. Those offers may be tempting, especially when it might take years for you to collect on a settlement – but just be aware that you’ll pay dearly for the service.
5. Vocational schools can be great – or not so great. Daytime TV is rife with ads for technical and career-training schools. Public colleges and community colleges often offer similar programs at a much lower cost. Compare any private school’s courses, rates of completion and job-placement percentages with those of public schools in your area.
6. Avoid credit-repair clinics. Their ads promise: “We can erase your bad credit, 100 percent guaranteed!” But such clinics, which are different from credit-counseling agencies, often charge hundreds or even thousands of dollars to do what you can do yourself for free.
7. Tackle credit-card debt on your own. It’s typically in your best interest to transfer your credit-card balances to a card with a lower interest rate if you possibly can. Opt for a card with a 0, 1 or 2 percent rate if possible, and concentrate on paying it off entirely while those low rates last.
8. Get reputable help if you really need it. If you’re convinced you need assistance from a credit-counseling agency, get connected to one that has made a commitment to professional and ethical standards through the National Foundation for Credit Counseling (1-800-388-2227) or the Association of Independent Consumer Credit Counseling Agencies (1-866-703-8787).
9. Know what credit counseling should include. A good counselor will sit down with you and discuss your financial situation in detail, devise a tailor-made action plan and provide you with ongoing support. Many good agencies offer help with budgeting and classes in savings and debt management. A substandard counselor simply will ask you to fill out an application.
10. Find a reputable financial planner. Another way to get control of your situation is to hire a fee-only financial planner through the National Association of Personal Financial Advisors or the Financial Planning Association. Fee-only planners do not make commissions by selling you certain financial products, and you may be able to hire one for just a few hours.
Sources and resources: