What’s Debt Bait? We’re coining that term today to refer to the subtle and not-so-subtle methods used to lure you into taking on some payments paying out your hard earned money in interest.
It’s the same old story, you’re perusing the aisles of BuyMore and what’s that? A THX 9.9 compliant, Blu-Ray, HD-DVD,Pro-Logic,Dolby Digital, 1080P, 3200Mhz black box is on sale for $2499 and you can buy it today for 90 days and it’s the “Same as Cash.” 90 days later you’ve got a $185 a month payment at 29% interest and suddenly it’s not the same as cash. FiscalGeek presents 10 ways that retailers, business and debtors will try and lure you with their own special brand of Debt Bait.
- Air Miles, Purchase Points, Schrute Bucks, Scooby Snacks for each dollar spent on your rewards credit card. Alright I’m prepared for the onslaught here, people will defend their Discover rewards card that pays them back .05% on purchases to their very graves because “I always pay off my balance.” I would believe you except I’ll let you in on a little business secret. If something doesn’t make you money, you stop offering it as a product. So guess what the house is betting you aren’t getting your balance paid off, and you know what they are right.
- 90,120,365,5000 Days 0% APR Same as Cash. Sure you’re right, the yarn barn can certainly afford to give you free money for the purchase of your own loom. Umm, no they can’t so odds are they are going to get their money and then some, usually at an incredibly high interest rate once your same as cash reverts to a full blown line of credit. Dave Ramsey often quotes the statistic that 78% of Same as Cash offers convert to debt.
- The Helpful Overdraft Credit Line. What’s that you don’t have all the money in your account you thought you did? No worries HTB Bank will be happy to loan you a little money until your next paycheck. This one has punished FiscalGeek for years until I got on the right track. This Credit Line is not an excuse to not budget or watch your finances!
- The Low, Low payment Car Lease. Yeah you can’t afford that Lexus if you actually pay it off, so why don’t you just go ahead and lease it for a little less money and then you don’t have to worry about actually owning the car when the lease run’s up. Who needs the hassle of owning a car outright? What’s that you drive 12,385 miles a year? Oh I’m sorry you were only allowed 12,000 miles, give me an additional $2000, thanks. Whenever a salesman will only talk to you about the monthly payment, get out of there!
- The good old Tax Friendly Home Equity Line of Credit. Well who doesn’t want an additional tax break, and on top of it you couldn’t possibly wait until you’ve save the money to put in your indoor pool. The kids need to be able to swim or they are going to be emotionally scarred for life. Oh and I’ll lump in my other credit card debt in there as well for good measure. This is especially painful in light of the housing market taking a dramatic drop and leaving so many homeowners under water because they used up their homes equity with these second mortgages.
- The Money Merge Account. You know what you need to get out of Debt? That’s right, more Debt! You may or may not have heard about these programs that offer to give you their amazing software package for the low low price of $3500 that will then calculate for you the exact amount of money to pay and when to get you out of debt in 15 years, oh you just need to get our special home equity line to go with that. Even worse these programs are sold through multi level marketing programs so you can build your own pyramid while locking your friends debt solidly in place. There’s a bunch of them out there but Ufirst is the biggest around. If anyone offers to get you out of debt by taking on more debt, on your house no less, a solid punch to the face might be in order.
- The Reverse Mortgage. You’ve worked hard all your life to pay off your home, but times they are a little tough in retirement so why don’t I go ahead and get some money out for myself to live on. This is a fantastic way for a retired person to lose their largest single asset. On top of the fact that this industry is so ripe with scams it’s sickening. If you really need the money, perhaps you should consider selling the home.
- Payday Loans. This is a fast track to poverty, bankruptcy and financial ruin. These people can take half your paycheck for merely giving you your money a few days earlier.
- Need some Money quick? You can pawn the Title to your Car and still Drive it. These loans are centered on the working poor and are really just a different form of the Payday Loan. These sub-prime lenders can nail you up to 300% interest a year and beyond. If you fail to make your payments, they can take your car and then they can stick you with more fees for repossessing the car. In many cases as well after they sell your car for less than you owe them, they’ll still come after you for the difference. This is an insidious product.
- Your friendly Credit Unions Salary Advance Loan. Well it’s my credit union so they are looking out for me. Actually they are just offering a Payday Loan with better rate terms that will then continue the vicious cycle of living beyond your means.
These are but a few of the ways you can be drawn into a life of debt. Here at FiscalGeek we are hater’s of debt in any form and have devoted ourselves to a life of debt freedom one tiny debt snowball at a time. If you would like more resources in your own journey for financial freedom you may want to check out some of our cornerstone articles on budgeting and debt reduction.
The Debt Snowball Saved my Marriage: Spreadsheet Tell-all
FiscalGeek’s Zero Based Budget System: Part 1, Part 2, Part 3
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Great post, and I’ll agree that the CC companies are betting against me. But the miles, Apple computer (there was a card thru Citi that gave a 5% credit to apple purchases. Long since canceled), TVs (through Sharper Image card) and $8K in the kid’s 529 account, and no interest paid, not a dime, tels me that as long as the cash is there and the purchase is not impulsive, charge it and pay in full.
I am the biggest anti-MMAer going. I top the google search for “HELOC shuffle” the premise of the money merge scam. You’re in for a weekly Sunday link…..
.-= JoeTaxpayer´s last blog ..My Life According to Billy Joel =-.
Paul–Amen to everything you wrote! An extra point on reverse mortgages though…
Lenders are hawking these, playing on the fact that the elderly are even more afraid to lose their houses than they are to be impoverished. Many equate losing their house with poverty, even though selling it would do a better job of helping them avoid it.
The reverse mortgage companies are calling my mom constantly and even conducting seminars at the local senior citizens centers. I contacted one to get some information, and was put on the contact list for periodic follow up, even after expressing my thoughts that it’s a bad deal.
I’m afraid a lot of the elderly are taking these loans as a way of avoiding the reality that it’s time to sell. When the time comes that they realize this and decide they need to sell, there’ll be a lot less equity coming out of the sale.
The card companies also make money from the merchant fees, so even if you pay off your balance every month, they make money … so convincing you to use their card instead of a competitors is worth the money they pay out in rewards.
There is, of course, a subset of the population that does get into problems with this, and the companies make some big money off them. You should NEVER use a card just because it offers rewards; however, if you must make the purchase anyway, why not get the rewards.
I get hundreds of dollars in rewards every year and haven’t paid a dime in finance charges in a decade. My gas card (Amoco) gives me 5% back. I need to buy gas anyway, and I like the convience of pay at the pump and the itemized bill at the end of the month, so this makes geat sense.
.-= Kosmo @ The Casual Observer´s last blog ..Beginner’s Guide to Fiction Writing =-.
Excellent post. I second the rewards aspect of credit cards, it’s a pretty sweet deal if you know how to work them. I pay my balance in full each month, accrue no finance charges, and I get a $250 best buy card in the mail every few months (reward of my choice, I’m a tech junkie). So essentially I’m able to spend a free $250 just by using my credit card instead of my debit card for purchases. Not a bad deal!
.-= Credit Guru´s last blog ..Michael Jackson’s credit score was as bad as his nose job =-.