The economy is rough … and it is really rough in some areas and in some job skills. Handling money well is always important, but that is particularly true when times are challenging. I recently received an offer in the mail from my mortgage lender that, according to them, would save me thousands of dollars. The offer was simple, make payments every two weeks (resulting in 13 payments instead of 12 per year) and I would save thousands of dollars over the course of the loan. This offer reminded me that many of our counselees sign up for deals like this – deals that sound good, but in reality are scams intended to enslave the person for years to come. Why do counselee’s sign up for scams like this? Sometimes they do because they are desperate, sometimes they do because they are tricked, and sometimes they do because they are foolish. Hopefully, this little blog post will serve to help you help those with some financial struggles.
Case in Point
Let’s be frank. Desperation, gullibility, and foolishness are recipes for disaster. In a moment of weakness, one of my counselees once traded a car that would be paid off in 6 months for another car with 3 additional years of payments in order to save $30 per month! Other counselees have been willing to take credit card offer after credit card offer in order to save 10% “all day” or to be available for certain specials. The deals, which sounded good at the beginning, turned out to be disasters in the end. There are all kinds of bad deals out there. You as a people-helper can give them a few simple steps to help them avoid bad financial deals.
Principle #1 –Do the math! Count the Cost!
Our counselees should be taught to carefully evaluate deals when they are offered. In the case of my mortgage lender, the reason they offered me the mortgage “deal” is that we pay extra on our mortgage anyway. Our current plan would pay off the mortgage in about 13 more years, but their plan would have us paying for 20 more years. In other words, by choosing to go with their plan our family will have a mortgage expense for 7 more years than my current payment schedule! They claim that I will save thousands, but in reality their plan would actually cost my family tens of thousands over the life of the loan. The math made it clear that their deal was really a scam. Doing the math gives your counselees the knowledge they need NOT to be gullible. Had my counselees chose to do the math on the car issue, they could have avoided a tremendous amount of financial hardship. There is a little witnessing tool that grabs people’s attention with one liners. One of them reads, “The lottery is a tax on those who are bad at math.” Gullibility can be prevented with a little dose of stewardship.
Principle #2 – Watch out for “Fees for nothing”
Another trick that is used by businesses to encourage you to depart of your hard earned money is to add fees for things that you can already do for free. In the offer I mentioned above, they were going to charge me an $8.95 monthly fee for offering this service (paying every two weeks). Wait a minute! They are going to charge me $8.95 per month in order to pay them every two weeks??? Don’t they realize that if I wanted to make payments every two weeks I could schedule them online through my bank for free! Why would I choose to pay anyone $8.95 for a service I can get for free?
What they are hoping is that the $8.95 monthly fee buried in the small print will be nothing in comparison to the great “savings” they are offering. So, let’s summarize this point …. I can make payments when I want, scheduled or not, for free or I can sign up for them to deduct over $100 per year. This same idea can be applied to credit card offers. When I am asked if I want another credit card I respond with something like “Since I will be carrying your card and advertising your business, how much should I expect to be paid for offering you that service?” I want no fees and lots of rewards. The fact of the matter is that no one should ever have to pay a fee for a credit card. One of the tell tale signs of a bad deal are the fees for doing something that can be done for free.
Principle #3 – Guard against monthly fixed expenses
This principle is perfectly illustrated by the car example illustration. My counselees saved $30 on their monthly payment and added 30 payments to their overall paying period. What they did was ensure that their monthly fixed expenses would remain high during a three year period. Many businesses operate under the “payment” principle. They have demonstrated that buyers are more likely to spend if they can get the payment low enough. In other words, buyers think more about payment then they think about fixed expenses. They should think about both. Bad deals are those deals that get a person more than they can properly afford by offering a low payment. These types of deals make it very easy to become enslaved in debt. Wise is the person who seeks to live within their means by refusing to take a bad deal.
More will be said in the coming weeks about a biblical theology of money… so stay tuned. As always, if you want to post a comment about one of your “bad deals” (whether you took the bait or not) we would love to hear from you.