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Before I start this, it’s crucial for you to understand that I’m simply suggesting that you avoid these types of businesses. I’m not blaming them, or capitalism, for your financial hard times. No one is forcing you to utilize these products or services, so if you use them, that is completely up to you, and it’s on you.
If you want financial freedom, you need to first take a step back and observe how the world operates around you. That’s time consumer, though, and many people never have the time or the energy to do so. I do have the time (I live a dull life, obviously). So without further ado, here are the businesses that will trip you up when you’re trying to get ahead.
Bad Credit? No Money? No problem! You can still buy frivolously with us. Rent-To-Owns appeal to the lower classes because they offer an ‘in house loan’. A large number of people live paycheck to paycheck, meaning they don’t have the funds to purchase new furniture, a new television, or electronics. Rent-To-Owns allow you to take whatever item you like, and in return pay a little bit of money back every week/month, for a very long time. Interest rates usually range from 200-300%. Crazy right?? People who are bad with money, or have fallen on hard times (such as medical bills, divorce, failed small businesses) are the main consumers in places like this. What other options do they have? Though this business practice is heartbreaking when you watch the cycle of poverty- I don’t blame the businesses. They’re essentially giving loans to people with awful track records and little money. They’re at a high risk of losing their merchandise and not getting paid.
Are you late on your bills? Car breakdown? We can help! Here’s $500, just pay us back in two weeks. The problem is that if you don’t have the money right now, you probably won’t have it in 14 days. The Consumer Federation of America reports that most payday loan companies charge $17.50 per every $100 a person borrows. That means that a $200 loan needs to be paid back in two weeks, with an additional $35. As I said earlier though, what if you still don’t have $235 at the end of the two weeks? That’s fine, now you just owe $270, due in another two weeks. If that doesn’t work out, you owe $305 two weeks later. Since you hit another $100 threshold, you now owe $52.50 on top that $305 for a grand total of $357.50. In two short months, you went from owing $200, to owing $357.50. As if that’s not bad enough, this isn’t usually a one time thing. According to the Washington State Department of Financial Institutions, one fourth of payday borrowers will take out a payday loan between 10 and 19 times annually. Can you imagine?? Steer clear of payday loans and save yourself the heartache and the money.
Pawnshop Loans / Car Title Loans
Pawnshop Loans aren’t nearly as evil, but they can definitely hurt consumers. Most pawnshops allow you to trade in an item (such as jewelry, electronics, or tools), 70% of what the item is worth in cash. You then owe that money back within a month, with about 10% additionally in interest. If you fail to pay back your loan, your item is sold by the pawnshop so that they can recoup their money.
Car Title Loans are where many people get themselves in a lot of trouble financially. Notice that a lot of these are in bad areas of town (Chicago is loaded with them!). Say you desperately need some money, and you have a car that is fully paid for. You take said car to a car title loan business, where they give you between 20% and 40% of what the car is worth. Perhaps you have an old Buick and they say it’s worth $1000. They give you $300, and take your title. They also install a GPS tracker on your car, and take your spare key. You owe 25% in interest, plus your initial $3oo in one month, which means you owe $375 in 30 days. At the end of the 30 days, you have three options.
1) Pay back your owed $375, and get your loan, spare key, and have the tracker removed.
2) Let the company take your car and resell it. In this case, they could easily sell your Buick for $1000-1500. If they sell it for $1500 (a profit that is more that the car is worth), they don’t have to share that with you. You’re now out a car, you may not be able to get to work, and you need a car again. You have to buy a clunker with money you don’t have, or you have to go to a dealership and buy another with crazy fees.
3) Renew your loan so that you don’t lose your car. You now owe another 25% on top of you preexisting loan (which is $375). So now, in another month, you owe $456.75. This number keeps climbing the more you have to renew this loan until you owe more than what the car is worth, or you let the business take it and resell it.
New Car Dealerships
Scenario 2 of the Car Title Loan mentioned buying another car from a dealership. Let’s talk about that for a minute. Used Car Dealerships really aren’t much different, but at least the cars are cheaper, and don’t depreciate immediately from leaving the car lot. Here are the six big reasons why dealerships are bad for people who are struggling financially (aka, the majority of Americans).
1. New cars immediately depreciate. If you’re trying to get ahead, you don’t need to be investing money in places where its not going to have the ability to pay you back. With a used car, you have the potential for getting your money back if you decide to sell it later.
2. Dealerships have hard pulls on your credit, even if you don’t buy a car from them. A hard pull means it drops your credit score because the dealership wanted to look at your credit. This is necessary if you buy a car, but if you shop at several dealerships prior to actually purchasing a car, this can have a huge impact on your credit score! Some places don’t even ask your permission before doing so either, even if you’re only browsing. Be careful, and if this happens, call and dispute this. Look for another post in the near future that helps you navigate and improve your credit score.
3. Trade-ins don’t work to your benefit. You can almost always get more money out of your car by selling it on your own, rather than trading it in for another vehicle at the dealership. I will admit, I’m guilty of utilizing a trade-in, rather than selling the vehicle myself. I did manage to get $200 over my car’s MSRP, so the convenience of it was worth it to me. If you absolutely have to trade it, always reject the first offer they give you, and perhaps the second one too. My first offer was HALF of the MSRP, so it is so very worth it to be contrary.
4. Dealerships don’t want you to purchase your vehicle outright, they much rather prefer payments (it’s how they make a healthy profit). This means they prefer people with bad credit and little cash. Don’t be the reason why dealerships make such healthy profits.
5. Dealerships make people who don’t know their credit score feel insecure, and then profit off that. “With your credit score, it is very uncertain if you’ll qualify for a loan”. This creates panic, and when they offer you a ridiculous price or interest rate, you usually take it. To avoid this, you should already know your credit score, what the car is worth (use Kelly Blue Book), and get pre-qualified for a loan beforehand, from a bank. The loan rates are significantly higher when they come from a dealership. When you get your loan through the dealership, they shop for the loan for you, and then tack on an additional percentage. For example, say you find a midsize SUV for $30,000. You don’t know your credit score, and you didn’t shop for loans before shopping for a car. The dealership shops for a loan for you, and they find one with an interest rate of 7.5%. They then tack on 2.5% which they call a ‘finance reserve’ (the dealer’s profit!). They offer you the rate of 10%, and (because you didn’t do your homework) you accept it. Your car loan was originally for 60 months, at 7.5%, for payments of $601, meaning you’d pay $36,068 in total. But, because you were clueless, your interest rate is 10%, making your monthly payments $637, meaning you’ll actually pay $38,345 in total. That’s $2,277 of your hard earned money that the dealership is pocketing!
6. To Learn about more dealership scams, check out this helpful comprehensive guide.
Surprisingly enough, I’m totally okay with the ATM fees that some people despise. You’re paying for the convenience of getting access to your money, when you didn’t take the time to just go to your own bank to retrieve it. I’m okay with that $3 ATM fee because it means I don’t have to drive 50 miles out of my way to get to my bank. What I do have an issue with (and you should too!), are these ‘services’ that banks offer:
1. Checking account fees. You shouldn’t have to pay a bank to hold your money for you. Look for banks that offer free checking accounts.
2. Overdraft protection. Banks try to sell overdraft protection as if it’s a benefit to you, but it definitely is not. Say you buy a $5 cup of coffee, but you only have $4 in your bank account. Instead of having your card declined, the bank covers it, but charges you $30 for over drafting. Some banks charge you the $30 for every day you’re ‘in the hole’, and others charge you for every transaction after your balance goes in the red. You may not even realize that you’ve overdrawn (because your card isn’t being declined), and you’ll continue doing this until you finally check your account.
3. ‘Minimum Fees’ Some banks charge you if you don’t have a minimum amount of money in your account. As long as your account balance is positive, you shouldn’t pay fees just because you don’t have a lot of money in your account. Some banks use this to their advantage. Say Joe has $6 in his account. His bank charges him the regular $2 monthly ‘maintenance fee’. Joe now has $4 in his account. Unfortunately, the minimum required amount for Joe’s bank is $5. The bank charges Joe a $10 fee for not having the ample amount of money in his account, and he is now $6 to the negative. Because Joe is negative, the bank charges him an additional $30 for insufficient funds. Joe started the beginning of the day with $6, didn’t spend any money, and yet, he now owes the bank $36, just for banking with them.
Certain MLM Businesses and Motivational Conferences
I am all for MLM businesses! I even wrote about why I feel this way here. However, there are certain MLM businesses that hurt more than they help. You shouldn’t have to purchase a massive amount of stock, or an ‘entry fee’ or a huge ‘website fee’ to sell products for someone else. You also shouldn’t be required to attend a costly seminar to become a part of the team. If they want you to attend a seminar, they should pay it. Also, there are some conferences that exist only to sell you false hopes. “Come to my finance seminar for the low price of $200 and I’ll teach you how to make $100,000 a year like me!”. Spoiler alert! He makes only $100,000 a year because he sells 500 of those $200 courses annually.
Instead of spending $5 a week on lottery tickets, invest your money elsewhere.
– The stock market will almost certainly give you a better return on your money.
– Invest in your own education. I’m not necessarily talking about college, but just spend money on your on knowledge. Books about better finance. Books about getting into real estate. Reputable online courses. Reputable seminars and conferences. Pay to shadow a successful person.
– Invest it in your own side hustle. Buy a dresser from Goodwill for $10. Put $2 worth of paint on it. Sell it for $40. Repeat.
– The bottom line is that lottery tickets are basically an idiot tax that the impoverished are known to put upon themselves.
Have you ever noticed how small, poor towns have an abundance of gas stations? Have you ever price checked them? Truck stops in particular are awful, the package of Raman Noodles that is typically $0.14 each at Walmart, is a whopping $1.28 at gas stations and truck stops. If you don’t have a lot of money, you can’t afford the convenience of a convenience store. Obviously its an addiction that’s hard to break, but convenience stores primarily sell alcohol and tobacco for a reason. That’s money that’s wasted, that will never benefit you in the future whatsoever. Do what you can to quit. And do your best to go to an actual grocery store and buy so much more food, for so much less.
I hope you understand that this list isn’t intended to make you angry, or blame businesses, or capitalism. Don’t blame yourself for falling for these gimmicks, the pandering, and the conveniences. It’s so easy to just simply not know any better. Learn from this though, and make yourself better because of it.
Did I miss any businesses or practices that really hurt people when it comes to saving money? Let me know in the comments below! As always, thank you for reading!