The Most Common Money Schemes People Still Fall Into
They say that a goof is born every minute, but dubious companies can convince you that you are a genius and not a goof by giving them your money. Many of these organizations prey on people looking to improve their finances, adding insult to injury. You know to stay away from fake IRS collectors and Nigerian princes, but there are a few less obvious, perfectly legal scams that people fall for all the time.
Payday loans
Payday loans seem like a good deal: you don’t get paid until Friday, but the rent should be on Wednesday, so take out a quick loan and pay it off on payday. In fact, this is rarely the case .
Most borrowers do not pay off the payday loan, take out another loan to pay off the original loan, and end up paying insanely high interest rates – up to 780 percent on a two-week loan . US borrowers year pay 7 billion dollars as commissions on loans to pay.
Payday loans are the notorious debt trap that sends consumers into a downward spiral of financial ruin, but people still fall for them, not because they are suckers, but because they see no other options.
Before you sign your life on a payday loan, check out the alternatives first. Ask your employer for an advance. Ask if your company offers any disaster relief programs. Call your other lenders, such as credit card companies, to see if they can enroll you in a repayment program in the face of difficulty with a lower minimum monthly payment. Almost anything is better than a payday loan.
Credit unions are also a good alternative . Many of them offer loans through the National Credit Union Fund’s REAL Solutions® program , an initiative that helps borrowers who are short on money. Some credit unions also offer “brand loans” for people with bad credit. Conditions are much better than payday loans and are designed to help you improve your finances, not wipe them out entirely. The National Center for Consumer Law lists some specific credit union loans in its Payday Loan Statement (PDF) . Services such as Kiva and Lending Circles offer peer-to-peer loans. Again, you still have to pay off the loan, but the terms are much better than payday loans and are designed to help you get back on your feet.
Paying your credit report
When I was 20, as an adult , I wanted to put my finances in order. I had to pull out my credit report, but I wasn’t sure where to start. Then I remembered the ad I saw for “freecreditreport.com”. You know, the one with that crappy band telling you to sign up and get your finances in shape? I should have known better, but it seemed harmless enough – why would a pop group lie to me about money management?
I checked in, got my credit report and everything was fine until a few months later I noticed an accidental charge of $ 19.95 on my credit card statement. I didn’t recognize the name, so I called my credit card issuer and they asked if I had registered at freecreditreport.com. Yes, they charged me $ 1 for my credit report, but I also unwittingly signed up for a monitoring service (buried in small print) that costs $ 19.95 every month. Of course I refused, but I also wondered how many other naive young people fell for it. It happened a long time ago, but people are still being deceived. In fact, a recent thread on Reddit Personal Finance raised this issue again.
As this Redditor pointed out, you never have to pay to check your credit report or rating . There are many ways to get both for free , but Annualcreditreport.com is the official source maintained by the Consumer Financial Protection Bureau . You receive a free copy of your report every year from each of the three major credit bureaus. You also don’t have to fork out for your credit card to get a copy.
Debt Consolidation
People turn to debt consolidation because they want to be held accountable. They want to put their debts in order and pay them off , but do not know where to start, so they turn to “professionals” for help.
Unfortunately, more often than not, debt consolidation is not the best option. You take out a loan and instead of making multiple payments to all your creditors, you make one payment to the debt consolidation lender. This sounds reasonable enough, but there are so many caveats here that people usually end up in a worse situation.
First, debt consolidation lengthens the life of your debt. With interest, you usually pay more over time than just paying your creditors yourself. Plus, if you miss a payment, you usually face costly fees, fines, and higher interest rates. There are legitimate debt consolidation companies out there, but the whole process is already shady, making it a breeding ground for scammers. LendingTree lists several red flags :
- You have been told that approval for your loan is “guaranteed” or “very likely”.
- You are asked to make a prepayment prior to loan approval
- You have been told that this will be a “quick fix” when it takes time to pay off the debt.
- You are asked to provide access to your bank account so that the company can automatically withdraw funds.
- The contract says you can only sue a company in certain states, not the state in which you live.
- The company only has a mailbox, not an office address.
Your intentions may be good with debt consolidation, but in most cases you will be better off with your own debt repayment plan or, if you are really desperate, get credit counseling .
Welfare Building Workshops
At one time, someone invited my parents to a seminar that was supposed to help them earn huge money on real estate.
Both of my parents were immediately skeptical and told me, “If all it takes to get rich was a free seminar, everyone would be rich.”
You’ve probably heard about this too. If this is not real estate, then this is some other get-rich-quick pyramid or Ponzi scheme. You go to a free meeting (maybe you even get a free t-shirt!) And then you are forced to spend more money, buy someone else’s product to sell, or sign up for some really expensive courses.
This has been going on for many years, but people still fall in love with them. The problem is that many of these gurus are luring people in with legal and reliable advice on personal finance. Robert Kiyosaki is a recent example. His book, Rich Dad Poor Dad, was (and still is) considered a reliable, inspirational reading about personal finance. The problem is, the book is probably not the real one. It is more of a “myth, like Harry Potter,” as Kiyosaki himself put it.
But, okay, the lessons are still good, right? Sure, but Kiyosaki (or his brand, however you want to look at it ) has used these lessons to create his own get-rich-quick real estate workshops. Marketplace , a Canadian consumer show, researched the workshops and described what they found :
“This is essentially a three-day commercial step,” Deol said. “You won’t learn anything. But I think most people were afraid to say anything. It was very frightening. The organizers came up to you and stood behind you, above you, and conversations were forbidden. “
Another problem is that there are some legitimate seminars, courses, and financial trainers out there that are really out there helping people improve their finances, negotiate higher salaries, or build their businesses. So how do you separate the real experts from the scammers? According to ScamWatch, here are a few alarms :
- An advertisement or seminar refers to statements such as “a risk-free investment,” “become a millionaire in three years,” or “get rich quick.”
- You are invited to a free seminar, but there are high fees to attend further classes. A scammer posing as a promoter may offer you a loan to cover both the cost of your attendance at additional seminars and the investment.
- You see an ad promising a quick and easy way to “unlock” your retirement account [retirement account] ahead of schedule.
Plus, legal courses usually teach you general skills that you can apply in any kind of business you want, while scams aim to get you familiar with something more specific: a company, product, timeshare, or business. -model.
Of course, if you have any doubts, you should inquire about the reputation of the company or individual with the Better Business Bureau . They include workshops and they will tell you how many people have complained about them and what complaints have been filed.
Fake financial advisors
If you need help managing your money, you can contact a financial planner, consultant, tax preparer, or accountant . There are many financial services professionals out there, and not all of them are legal. Fraudsters throw themselves at the tail of the accredited.
This is called “misrepresentation fraud”. Basically, scammers tamper with their credentials to make you think they are trustworthy when all they want to do is take your money, Bernie Madoff style. Investopedia puts it this way :
… there are dozens of categories of financial planners such as Certified Financial Planner (CFP), Registered Investment Advisor (RIA), Certified Accountant (CPA), Chartered Financial Analyst (CFA), and many more. The public may not be familiar with the designations, ethics, or certification requirements and thus may receive advice from someone with no education, experience, or experience in investment advice. It’s pretty easy for someone to hang up the shingles and start handing out tips. The fraudster can then close the store and walk away with the proceeds, or trick unsuspecting customers with fake products.
When you hire a financial professional, make sure they have the appropriate credentials. For example, if you need someone to manage your money, you need a paid Certified Financial Planner® registered with the CFP Board . These CFPs take a fiduciary oath to act in the best interests of their clients; otherwise, they may lose their license. This means they can’t sell you a bunch of dubious investments just to earn a commission. The fact that a financial advisor or investment professional is not a CFP does not automatically make them a scam, but CFPs are very picky about their titles because it is a sign of trust.
When it comes to your taxes , make sure your tax pro is a Certified Public Accountant, preferably registered with the IRS Tax Authorities Directory . If you hire someone to invest, they must, at a minimum, be a Certified Chartered Financial Analyst or Registered Investment Consultant. You can also use the National Association of Personal Financial Advisors database to find highly qualified and legitimate professionals.
However, credentials are just the beginning, and they don’t necessarily generate good income. You still want to ask the right questions and do your research.
If you’re looking to get your finances in order and don’t know where to turn, there are too many shady businesses out there that will take advantage of this. They will find a way to make you believe you are making the right decision, but if you know what to look for, you know when to stay away.